The MACD (Moving Average Convergence/Divergence) indicator by Gerard Appel shows how two moving averages on closing prices come together or move apart (ie. converge or diverge). The main MACD line is the difference between a fast and slow EMA (see Exponential Moving Average), this is shown in green in Chart.
MACD = EMA of price - EMA of price
A signal or trigger line is then formed by smoothing this with a further EMA. This is shown in red in Chart.
signal = EMA of MACD
A crossing of the MACD up through the signal line is taken as a buy signal, or downwards a sell signal. The difference between these lines is shown as a histogram (solid white block). This helps show whether the lines are coming together or going further apart.
histogram = MACD - signal
Crossings of the MACD line up or down through zero are also interpreted as bullish or bearish (respectively). This corresponds to crossings of the underlying EMA up or down through the EMA.
Periods 12,26,9 are frequently used, but can be varied in Chart (see View Style).
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