• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 4. The Basics of Technical Analy... > Moving Average Convergence Divergenc...

Moving Average Convergence Divergence (MACD)

MACD is simply a measure of the relationship between two Moving Averages of the same price series. MACD is a Moving Average of the difference of two Moving Averages of price. As such, it is a measure of momentum in the price movement (Appel, 1979). As the Moving Averages move further apart, this is a sign of increasing momentum. Because MACD is a measure of the relationship of two Moving Averages, it stands to reason that it can be used as a trendindicative indicator. This follows from the fact that Moving Averages are best used to identify trending patterns as opposed to consolidation price movements.

MACD can be read and interpreted in all kinds of ways. Some traders prefer to look at it as a histogram and to interpret it as a divergence indicator. Others prefer a line version. There are three main ways to interpret MACD, namely simple crossovers, overbought/oversold, and divergence.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint