Why You Should Be Using The MACD Indicator

There is a reason the MACD indicator (which stands for Moving Average Convergence Divergence) is one of the most popular indicators used by traders. Primarily, traders implement it into their TA to gauge the momentum of a particular investment.

It works by comparing the difference between a 26-day and 12-day exponential moving average of closing prices, or EMA. The MACD is calculated by subtracting the value of a 26-day period Exponential Moving Average (EMA) from a 12-day period EMA. Both the 26-day EMA and the 12-day EMA are then converted into a single line, the MACD line. This line converges with another line––the MACD signal line––which is a 9-day average EMA. The underlying histogram represents the MACD line minus the MACD signal line, which represents velocity and confirms direction.

Its popularity is due in part by how easy it is to implement into a broader TA strategy.

Leave a Comment