MACD

    MACD is usually calculated by subtracting the 26 days moving average of the security from the 12 days moving average. This gives a line oscillating above and below zero.

     A 9 day EMA (Exponential Moving Average) of the MACD (not of the security) is drawn along with the MACD line. This is called as ‘signal line’.

     Buy signal is given when the MACD rises above the signal line and sell signal is given when the MACD falls below the signal line.

 

     The difference between the MACD and the signal line is drawn as vertical lines above and below the zero line. These lines are called MACD-Histogram. These lines help us to determine the strength of the current trend.

     In the above picture buy signal is given when the MACD line (blue) rises above the signal line (red) and sell signal is given when the MACD line falls below the signal line.

     When the MACD histogram rises it shows that the traders are becoming more bullish. On the other hand when the histogram falls it shows that the traders are becoming bearish.

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