MACD

#momentum #trendfollowing

Creator: Gerald Appel

Shows the gap between a fast and a slow moving average (12 EMA minus 26 EMA). A signal line (9 EMA of MACD) and a histogram show how this gap is changing.

• Short period: 12
• Long Period: 26
• Average Period: 9

In the MACD indicator, two lines are plotted below the chart.

1. MACD line
2. Signal line

An MACD indicator calculates the difference between two moving averages. When the MACD indicator is rising, it indicates that the distance between two moving averages is increasing. A falling MACD indicator indicates that the distance between two moving averages is decreasing.

A MACD line above zero indicates a bullish trend. A MACD line below zero indicates a bearish trend.

An average line of the MACD line is known as a signal line. The MACD line above the signal line indicates a bullish trend. A MACD line below the signal line indicates a bearish trend.

Therefore, MACD lines above signal lines and zero lines are very bullish, while MACD lines below signal lines and zero lines are very bearish.

Useful readings:

MACD crosses above signal line: Momentum turning up

MACD crosses below signal line: Momentum turning down

MACD above zero: Price trading above its averages, uptrend

MACD below zero: Price trading below its averages, downtrend

Histogram shrinks near a top: Move is tiring, tighten stops

Price makes new high but MACD does not: Bearish divergence, trend losing power

Price makes new low but MACD does not: Bullish divergence, trend losing power

Objective rules:

Bullish: MACD line crosses above signal line.

Bearish: MACD line crosses below signal line.

Strong bullish setup: MACD crosses above signal AND both are above zero

Strong bearish setup: MACD crosses below signal AND both are below zero

Zero-line rule: Take only long signals when MACD is above zero, only short signals when below zero

What makes it unique:

It turned the gap between two moving averages into a readable momentum tool, uniting trend and momentum in one window. Its three layers – lines, signal and histogram – give three speeds of reading from one calculation.

Click here to learn more about MACD line.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.