What Is Moving Average Convergence Divergence (MACD)?
Moving Average Convergence Divergence (MACD) is a technical analysis indicator used to identify momentum in the markets. It is calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average of an asset’s price. The resulting line, known as the MACD line, can be compared with a signal line which is usually a 9-day EMA of the MACD line itself. When these two lines cross over each other it signals either a buy or sell opportunity depending on whether they are crossing up or down respectively.
The main purpose of using MACD is to determine when there has been an increase in buying pressure and when selling pressure has increased so that traders can make informed decisions about their trades. Additionally, traders may use this indicator to spot divergences between price action and momentum which could indicate potential reversals in trend direction. By combining both trend following and oscillator characteristics into one indicator, MACD provides traders with valuable insight into market conditions that would otherwise not be available through traditional chart analysis alone.