MacD - Technicals

MACD is an abbreviated version of a technical indicator officially named Moving Average Convergence Divergence. But everyone who uses it simply calls it MACD and pronounces it Mac Dee. Only rookies – or masochists – refer to the indicator by its full name.

This indicator was developed by mathematical genius Gerald Appel in the 1960s and is designed to show the difference between two exponential moving averages, one on a fast setting and one on a slower setting. In order to calculate the MACD, subtract the 26-day exponential moving average from a 12-day exponential moving average. A nine-day dotted exponential moving average, called the signal line, is placed on top of the MACD.

When a short-term moving average crosses a longer term moving average, it indicates a trend in that direction. It is also important to note when a stock moves through the longer-term averages. A stock often uses the moving average as a support or resistance line.

MACD has a center line that is the "0" line. When MACD crosses that line, it indicates a potential change in the direction of the stock. When MACD falls below the signal line, it generally means the stock is overbought and indicates the time is right to sell. When MACD rises above the signal line, it indicates that it could be an appropriate time to sell.

When there is divergence in MACD (the indicator shows a different trend than the price chart), it indicates the strong possibility of change in momentum and signals the end of the current trend.

MacD info by BetterTrades Charts