| Moving
Average Convergence Divergence - MACD |
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The
"MACD" is a trend following momentum indicator that shows
the relationship between two moving averages of prices. To Calculate
the MACD subtract the 26-day EMA from a 12-day EMA. A 9-day dotted
EMA of the MACD called the signal line is then plotted on top of the
MACD.
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There
are 3 common methods to interpret the MACD:
1. Crossovers - When the MACD
falls below the signal line it is a signal to sell. Vice versa when
the MACD rises above the signal line.
2. Divergence - When the security
diverges from the MACD it signals the end of the current trend.
3. Overbought/Oversold
- When the MACD rises dramatically (shorter moving average pulling
away from longer term moving average) it is a signal the security
is overbought and will soon return to normal levels. |
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