Glossary
MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator that shows the relationship between two exponential moving averages of price.
MACD is calculated by subtracting the 26-period EMA from the 12-period EMA. A signal line (9-period EMA of MACD) is then plotted on top. Traders look for crossovers, divergences, and moves above or below the zero line to generate signals.
Key Points
- A bullish signal occurs when MACD crosses above the signal line.
- MACD is a lagging indicator because it is based on moving averages.
- It works best in trending markets and often produces false signals in sideways markets.