Moving Average Convergence/Divergence (MACD)
The Moving Average Convergence Divergence (MACD) is the difference between two Exponential Moving Averages. The Signal line is an Exponential Moving Average of the MACD.
The MACD signals trend changes and indicates the start of new trend direction. High values indicate overbought conditions, low values indicate oversold conditions. Divergence with the price indicates an end to the current trend, especially if the MACD is at extreme high or low values. When the MACD line crosses above the signal line a buy signal is generated. When the MACD crosses below the signal line a sell signal is generated. To confirm the signal, the MACD should be above zero for a buy, and below zero for a sell.
The time periods for the MACD are often given as 26 and 12. However the function actually uses exponential constants of 0.075 and 0.15, which are closer to 25.6667 and 12.3333 periods. To create a similar indicator with time periods other than those built into the MACD, use the Price Oscillator function.
The MACD was developed by Gerald Appel.
Formula:
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