Moving Average Convergence Divergence (MACD) Flashcards
What is the Moving Average Convergence Divergence (MACD)
A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
How is MACD calculated?
The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.
How do you find the signal line for MACD
The calculation will form the MACD line, A nine-day EMA of the MACD called the “signal line,” is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals.
What about the MACD and signal lines trigger trading signals
When MACD line crosses above the signal line = buy signal
When MACD line crosses below signal line = sell signal
What does increased distance of the MACD from the base line (0.00) indicate about the moving averages
The distance between them is growing.
What is the MACD histogram used for and how is it used
Used to show bullish/bearish momentum, bigger difference between averages = more momentum
How might MACD give a false reversal indication
Its a momentum indicator so if the momentum slows down, for example sideways movement, the MACD might fall below the signal line, even if the market isn’t acc turning bearish
What is a bullish divergence
A bullish divergence appears when the MACD forms two rising lows that correspond with two falling lows on the price.
What signal does a bullish divergence give
This is a valid bullish signal when the long-term trend is still positive.
What is a bearish divergence
When the MACD forms a series of two falling highs that correspond with two rising highs on the price, a bearish divergence has been formed.
What does a bearish divergence indicate in a long-term bearish trend
the bearish trend is likely continue
What can a bearish divergence indicate in a long term bullish trend
can signal a weakness in the trend but not super reliable.
