The MACD (which
stands for "Moving Average Convergence/Divergence"), developed by
Gerald Appel, is a momentum indicator showing the relationship between
two moving averages. The MACD is basically the difference between
a 26 day and 12 day EMA (exponential moving average). Next, a 9
day EMA is plotted on top of the MACD to show buy or sell signals.
Many day traders use the MACD when trading as a quick substitution
for calculating support and resistance, so it will obviously be
of limited use to SureFireThing Camarilla Equation traders,as they already have
the best support / resistance levels obtainable.
The three most popular
ways to use the MACD are crossovers, overbought & oversold conditions,
and divergences. A crossover means sell when the MACD falls below
the signal line. likewise, buy when the MACD rises above the signal
line. Overbought & Oversold indicator - when the 12 day EMA pulls
away hard from the 26 day EMA (i.e., the MACD rises), price is probably
overbought. Reverse for an oversold condition. Divergences are used
to spot when a current trend may be about to reverse and occur if
the MACD diverges from the price. If the MACD is making new lows
yet pricedoesn't, its bearish. If the MACD is making new highs while
price fails to reach new highs, it is actually bullish. Calculate
the MACD by subtracting the value of a 26 day EMA from a 12 day
EMA, then plot a 9 day EMA of the MACD (the "signal" line) on top
of the MACD.