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MACD Indicator Explained Simple

Mathematical indicators provide an objective assessment of prices. They help you to formulate an objective opinion on the direction of the market and trading calibrate your timing while reducing uncertainty and risk of multiple transactions for no real reason.

Tools used in mathematics are trading moving averages and oscillators. (The oscillators are trading tools that indicate movements of excessive purchase or sale of currency). Although there are a multitude of mathematical indicators, we discuss here the following:

Simple and exponential moving average (SMA - EMA)
Convergence-divergence of moving averages (MACD)
Bollinger Bands
Parabolic (SAR - Stop And Reverse)
The relative strength index (RSI - Relative Strength Index)
Moving average
A moving average is an average calculated on a series of awards slippery interval. A moving average gives a better view of market trends by reducing (or at least reduce) the "statistical noise on a daily basis." It is a popular tool in the field of technical analysis, which is used as an indicator or oscillator.

There are several types of moving averages, but we will discuss only two of them: Simple Moving Average (SMA - Simple Moving Average) and Exponential Moving Average (EMA - Exponential Moving Average).

Simple Moving Average (SMA - Simple Moving Average)
Definition
Simple Moving Average is the arithmetic mean calculated from data covering interval. Is obtained by adding each interval value, and dividing the sum by the number of intervals of the period covered. For example, by summing the closing prices of the instruments for the last 25 days and dividing the sum by 25, you get the Simple Moving Average of 25 days.

Although the daily closing prices are used to calculate the most simple moving averages can also be based on the median or average daily between the highest and lowest closing date.

Benefits
Moving average is smoother, which shows the basic trend of the market.

This is one of the best ways to measure the strength of the long-term trend and the likelihood of rollover. When the curve is a moving average is increasing and the market price is above the active changes observed in the uptrend. Conversely, when the moving average curve is downward and the market price falls below this indicates a downward trend.

Limitations
It is a lagging indicator, and qu'avancé. Its signals occur after the beginning of a new trend, not in advance. That is why it can cause you to enter a trade with a slight delay.

It has been criticized because it gives equal weight to each value of the period. Some analysts argue that more weight should be assigned to the most recent course.

Example
You can see from the diagram below two curves simple moving averages - calculated at 5 days (red) and 20 days (blue).

Exponential Moving Average (EMA - Exponential Moving Average)
Exponential moving average is the average weight data reduces exponentionellement, recent data have more weight than older data.

Characteristic
Weight applied to the most recent price depends on the period is calculated exponential moving average (EMA). Shorter period of time, the greater the weight applied to the most recent price.

EMA can be set in two ways: as a percentage, in this case the analyst determines the degree of reduction of the weight applied to each observation, or the number of times, in this case, the analyst determines the duration of the EMA and the weight of each period is calculated by formula. The last method is the most commonly used.

Advantages compared with the Simple Moving Average
Because it is more sensitive to the latest data, the Exponential Moving Average techniques allows traders to react faster to changes in prices.

Unlike the Simple Moving Average, each recalculation of the Exponential Moving Average (EMA) adds the effect of the most recent observation, without leaving the oldest. Although the impact of data points oldest and decreases as it never disappears completely. This is true regardless of the accounting period EMA. The influence of older data decreases rapidly for shorter EMA EMA period longer, but again, it never completely disappears.

Example
You can see in the table below the difference between the Simple Moving Average (blue) and the Exponential Moving Average (in green), calculated over a period of 20 days.
Convergence-divergence of moving averages (MACD)
Convergence-divergence indicator moving averages (CDAD) has been used to detect acceleration signals trend. MACD is an acronym for Moving Average Convergence Divergence.

Calculation
Indicator MACD is calculated by subtracting the two exponential moving averages of different periods: the first and second short time longer. Periods are generally used to calculate the indicator MACD is exponential moving averages of 12 days and 26 days.

From this difference, simple moving average of 9 periods are calculated, which is called the "signal line".

MACD = [moving average 12 days - 26 days moving average]> Exponential Weight Indicator

Lignr Signal = Simple Moving Average (MACD)> Indicator Weight in constant

Interpretation
Due to exponential smoothing indicator MACD react faster to changes in prices of the signal line. This is why:

When the MACD crosses the signal line: moving average short period (12 days) is changing faster than the moving average long period (26 days). This is a buying signal, suggesting that the price will probably know speeding up.

Conversely, when the MACD signal line changes: This is a bearish signal which indicates an impending reversal.

Example of MACD
You can see in the picture below is an example of the convergence-divergence of moving averages. MACD indicator is shown in green and blue signal line.

Bollinger Bands
Bollinger Bands were developed by John Bollinger in the early 1980s. They are used to identify extreme price movements up or down. Bollinger identified the need for adaptive trading bands and dynamic distance changes as a function of volatility. In periods of high volatility, Bollinger bands widen to become more forgiving. During periods of low volatility, they narrow to contain prices.

Calculation
Bollinger Bands consist of a system of three curves drawn from price data:

Middle band represents the average trend. The simple moving average 20 days is generally used to represent it.

The upper range is similar to the middle band, but it is moved upwardly by two standard deviations. The standard deviation measures the volatility and price dispersion is about average.

The lower band is similar to the middle band, but it is moved down two standard deviations account for market volatility.

The three curves are ready to form a band of variable width that can be seen where the market price in relation to the stripes.

Upper Bollinger Band = Simple Moving Average 20 days + 2 standard deviations

Bollinger Band = Middle Moving Average Simple to 20 days

Lower Bollinger Band = Simple Moving Average 20 days - 2 standard deviations

Interpretation
Likelihood of sudden movement in the price increases as the width of the bands is reduced.

When prices reach constant upper Bollinger band, it is a sign of excessive market purchases and sales signal.

Conversely, when they continually touch the lower band, the market is considered marketable surplus, which causes a buy signal.

Example of Bollinger Bands
You can see the green in the picture below Bollinger Bands Index S & P 500.
Parabolic (SAR - Stop And Reverse)
Parabolic (SAR) is an effective investment tool devised primarily by J. Welles Wilder to correct defects in other systems of trending.

Description
Parabolic is a trading system that calculates the "stop-loss" market followers. Diagram of these points follows the price movements in the line full parabolic.

Interpretation
When changing the parables under the market price, they indicate Buy signals.

When they work more than the market price, they suggest selling long positions and initiate short positions.

Points set a stop-loss levels recommended stop-loss positions followers. In the bull market, a long position should be open with a trailing stop that accompanies daily market trend and will be activated in case of falling prices stop level. In a bear market, short position can be opened with a trailing stop that moves down each day until it is activated by an increase in the price level guests.

Parabolic is considered to be most effective during periods when the market is changing trend. It helps traders to catch trends early. If they are not confirmed, the vessel quickly alternates from one side or the other curve in market prices, generating a stop signal and reverse (Case open and twist) that appears when pointing to the merchant to close its open position and to initiate a new meaning to the opposite .

Example parabolic
You can see in the table below green parabolic applied USDJPY.
MACD Indicator Explained Simple
The relative strength index (RSI - Relative Strength Index)
The relative strength index (RSI) was developed by J. Welles Wilder as a system capable of transmitting signals of buying and selling a crowded market.

Definition
RSI is based on the difference between the average closing price of the sessions positive and negative sessions per day observed over a period of 14 days. This information is then converted to a value between 0 and 100.

When the average winning sessions is higher than average loss sessions, RSI is moving up. When means losing sessions is above average winning sessions, RSI is moving down.

Interpretation
RSI is typically used to confirm the trend. Uptrend is confirmed when the RSI is above 50 and downtrend when it is less than 50.

Identify situations of over-bought or over-sold when crossing certain thresholds (usually "30" and "70"), which prevent future upheavals possible.

Indicator of over-bought (RSI over 70) means that almost no buyers in the market and therefore, prices are likely to decline to the extent that purchasers will make their profit from the sale.

Example of RSI
Can be seen in red in the diagram below, Relative Strength Index GBPUSD.
MACD Indicator Explained Simple

Under the general term technical indicators, or "oscillators" hiding actually hundreds of processing techniques of mathematical courses.
These adjustments can plot mathematical curves that are usually placed in your chart, and you can get the trading signals of these tools to know when to buy or when to sell.

New indicators are being invented every day, and their calculation is sometimes very obscure, as it is not completely crazy.

As is the case since the beginning of the training, so we will focus in particular on two indicators ancient and well-known and very popular, and as more secure: The MACD and RSI.

MACD
MACD is an indicator that the calculation arises from the principle of moving averages.

It consists of cutting two curves periodically: MACD line and signal line.
And it is precisely these crossovers that we will learn to buy or sell signals.

The interpretation rules
When the MACD line falls below the signal line, it is a sell signal.
When line MACD rises above the signal line, it is a buy signal.
Therefore it is obvious that some signals work better than others, but generally, MACD can effectively perform sound.

However, there are principles here simply to eliminate some false signals, if not all, and we invite you to refer to our university Forex for details.

RSI
RSI is in turn composed of a curve, positioned below the graph, and has an upper limit and lower limit.

There are different ways to get the RSI signals. The most obvious and most common is to identify surachats and oversold.

The interpretation rules:
When the RSI rises above the upper limit, we say that the motto is "overbought". In this case, you must wait until the RSI crosses the ceiling again, this time down to sales positions.
When RSI falls below the lower limit, we say that the motto is "oversold" in this case, you must wait until the RSI crosses the threshold again, this time rising to position themselves to buy.
Differences
All indicators own methods of interpretation, however, localization technique trading signals is common to almost all indicators (including RSI and MACD): Differences.

Specifically, it is important to identify the differences between the behavior of the indicator, and the behavior of the cost curve, and this is one of the most reliable and efficient techniques to identify trading signals. Some books are devoted entirely to those differences.

For example, talking about the bullish divergence when the curve is bullish indicators, but the prices are at the same time on the downside, and in this case, this is a buy signal

In contrast, it is called bearish divergence when the price curve is an upward trend, but the curve of the indicator moves down, and in this case, we face a sell signal.

This little stepfather very simple, but in practice, we realize that the marking small differences within ... also learn the differences can lead to a lot of "false signals" that you should not follow.

Fortunately, there are principles, techniques and simple rules which may well identify differences and eliminate false signals, and if this work is done well, but the success of divergence signals can not exceed 80% ...

To learn more about these techniques, with the help of our coaches, we invite you to inquire about our program Forex University, which includes a video lesson explaining any differences.

MACD is an indicator that follows the trend. It consists of an exponential moving averages: 12 (white) and moving average 26 (red). We can add a histogram that shows the difference between the two averages.

Yellow, you will find the boundary 0 is the separation between the rising and falling. Commonly used parameters such as 12/26/9 this graph. However, some enjoy 4/20/4 aggressive trading. MetaTrader trading platform, you should use the "+ macd OSMA" to download here
Working macd forex
1 - crossing MACD is bearish. It should be noted that we are still above the yellow line is the boundary between the uptrend and downtrend. Then the yellow line is crossed and the downward trend continues. High probability of winning.

2 - End of temporary movement of sale. You can buy, although we are still in downtrend. But the probability of winning is less as evidenced by the next signal.

3 - bearish signal, we are in trend because under the yellow line. High probability of winning.

4 - How to buy 2 with a low probability of winning. Despite the rise in MACD yellow line in the hope of reversal.

5 - We sell on-trend small profit.

6 - Signal bull in the hope of return above the yellow line. Another low probability of winning.

7 - Good bearish signal with a high probability of winning. Under the yellow trend

8 - Buy signal is still below the yellow line and the low probability of profit and loss.

9 - bearish reversal signal unfortunately.

10 - Buy signal with a low probability of winning. But crossing the yellow line and twist and a high probability of winning.

11 - Signal drop with a low probability of winning, because we are still above the yellow line.

In conclusion, the 11 signals selling / buying, 8 signals are only 3 winners and losers, 72% success.

Finally, keep in mind that this chart shows all phases of trends and trend breaks currency pair.

MACD indicator is a popular technique, very powerful and relatively easy to use. This graphical tool is just the difference of the moving averages over (see article moving averages, particularly in the area of ​​their intersection) and their exponential average (signal) on both sides of line 0. It is a crossing of the MACD and the signal line, and crossing the line 0, which give an indication of the purchase or sale.

History and computing
MACD stands for "Moving Average Convergence Divergence," so to speak, convergence and divergence of moving averages (in comparison to understand them in the short and long term).
This indicator was developed by Gerald Appel in the late 1970s. Calculation, not necessarily obvious to the non-specialist, are summarized as follows:
- MACD = difference between the exponential moving average 12-day exponential moving average 26 days
- Signal line = exponential moving average of the MACD to 9 days
MACD for its construction, because based on the difference between two exponential moving averages that are calculated from the value of the closure. For this reason, the indications given by the MACD are valid only when the deadline is reached (pay attention to false signals).
MACD is represented by two lines (MACD line and the signal line) that oscillates around zero level. Intersection of two lines crossing zero level provide guidance to predict the development of technical progress.
Below is an example of courses with MACD, Altran here throughout the year.



Use
It is sufficient to identify the following signals:
- The MACD crosses the signal line downwards and is negative (below zero): Information signal.
- The MACD crosses the signal line on the rise and is positive (above zero): buy signal.
However, apart from these two cases, the indications given by the MACD can also be used in some other cases, especially when the MACD has a bullish divergence (bearish) compared to the downward path (bullish).
However, MACD, moving averages as a lack of a delay for signals that can not be stressed. Also, be careful, not only basing MACD to take a position: absolute must confirm the signals given by other indicators. Technical analysis, to be the most reliable, requires more overlap with indicators by ensuring, however, that it does not interfere too much and do not slow down the decision-making process. A balance is needed, but at least two or three indicators should be used to a minimum.
See examples in order to better understand the use of this indicator.

Examples
Example: During PPR 6 months + MACD technical indicator + MM 50 and 20.



What can we observe?
- Round 1: MACD crosses the signal line fuck. Although the indicator is always positive (located in the area above zero), signal divergence with previous uptrend should be taken into account. We can see then, even if of course not fail, its increase is highly compromised and losing ground. This coincides with the divergence of MACD is close to the zero line.
Mid-June MACD crosses the zero line, coincides with the crossing of moving averages (in the short term mm mm passes under the long-term signal that is selling). It is, however, a false signal: the crossing of moving averages is weak downtrend from mid-May to mid-June. In addition, it also should be noted that if the zero level is not really down, it often becomes support. This is what is happening here. This highlights will be noted, the basic technical indicators overlap in decision making.
- In moving averages recross quickly to increase the technical back title. However, a large discrepancy is observed: MACD bends sharply at the end of July until the moving average can not give a signal because the course is still rising. Here, MACD can therefore have a strong signal of anticipation.
- The new downward trend then confirmed by the MACD crosses the zero level and slip into negative. Previous holder was destroyed long downtrend begins.
Example 2: Google MACD 3 days.
One can clearly see two signals usable in MACD work in the short term. The opening 20, there is a crossing MACD passing signal line in negative territory which is a buy signal. Several hours later, the reverse occurs and the MACD failed to move into positive territory. There are broken and it brings the price of the lowest of the day, and even below this level. A little later, a new Buy signal appears for a short period. Closing day volatility. Note the gap and push volumes between closing and opening day Friday, October 21.
Example 3:
Some technical analysts make decisions based solely on the level of MACD. Green: buying red sale. Although this strategy can work binary, we can not advise taking into account the risks of false signals. However, this example demonstrates the success of this strategy, it is interesting at this point.

Example 4: canceling signal Natixis (over 1 year with MACD)
This example highlights the cancellation trends in MACD. Even if the buy signal was given in mid-November 2010 (top right orange) MACD trend is valid by interrupting the line of the lowest MACD, dashing hopes up. In addition, MACD is not long board in negative territory and Natixis while in continuous downward trend. Being able to see how things in the medium term or long term supports the hypothesis that the MACD is an indicator that also works well in the market trend.

The buy signal is given when the MACD crosses the signal line. To avoid some false signals, it is possible to consider that the buy signals when the MACD is positive. If upward crossing MACD signal line is in line 0, then it is possible to wait for crossing MACD 0 line to take the position.

A sell signal is given when the MACD crosses the signal line. To avoid some false signals, it is possible to consider that the sell signal when the MACD is negative. If crossing down with the MACD line is above the signal line 0, then it is possible to wait for crossing MACD 0 line to take the position.

This trend is bullish when the MACD is positive (greater than 0), short moving average is now above the long moving average. In the case of the MACD rises quickly, it shows that parity is overbought.

Conversely, the trend is bullish when the MACD is negative (less than 0), short moving average is now below the long moving average. In the case of the MACD falls rapidly, it indicates that the parity is oversold.

Benefits of MACD are numerous:

- To determine the trend (Rising MACD uptrend or lower MACD bearish trend)

- To detect motion correction in terms of line 0 (MACD uptrend or reduction rising MACD bearish trend).

We can summarize the MACD signals with four possibilities:

- The MACD is above its signal line and the line 0: The upward movement is

- The MACD is above its 0 but below its signal line: Parity is a phase correction

- The MACD is below its signal line and the line 0: The downtrend is underway

- The MACD is below its line 0 but above its signal line: Parity is growth phase
To avoid some false signals, it is possible to consider that the buy signals when the MACD is positive. If upward crossing MACD signal line is in line 0, then it is possible to wait for crossing MACD 0 line to take the position.

MACD (Moving Average Convergence Divergence) consists of a stack of several filters and oscillators. It was built in two phases:

First calculate the MACD-OSC (oscillator) of the difference of two exponential moving averages. Then we find the moving average oscillator (activated) was observed together.

Both averages are usually selected oscillator 12 and 16 days (9 and 19 for example against). Trigger is selected in the whole 9 days (for example, it took 5)

- There is a buy signal when it crosses Macs-upward 0. Rising signal is expected to cross the moving average.

- There is a sell signal when the NGO-Macs below 0 anticipation given by the transition from Macs-OSC in its moving average.

Unlike the previous indicators, MACD is used in market-oriented. In fact, this kind of market lends itself to cross the moving average, which is what this basic MACD.

Similarly, detection of differences can predict trend reversal.

We learned that moving averages to detect visual changes underway, often finer than powerful trend lines. But can we remain cautious about the story angle between different MM. We need a tool to help visualize this point, and even tries to detect changes even earlier.

This tool is called the MACD stands for Moving Average Convergence Divergence by Gerald Appel, publisher of "Systems and Forecasts." IBM back again under that you know the tricks to detect trend lines and moving averages. Let us now perspective "MACD".

MACD is simply the difference between two Exponential Moving average of a different period. Commonly used periods of 12 and 26 days for MME (E Exponential whose formula is = MME end of the day * 0.09 + MM day * 0.91).



MACD reflects this difference, it will scratch when both MME will be equal. Purple horizontal line represents zero when the MACD line is zero.

Why exponential moving averages are used? To give more weight to recent prices curve, so give him more sensitive to dynamic changes.




How to use the MACD? The funds defined by its inventor to associate with Exponential Moving Average bit shorter we call signal line. White full here, there is MME9 using MACD as a source of calculation (an average of 9 days of MACD). Quite simply, it shows points where MACD (E26, E12) reduce the signal line, MME9.

When the MACD crosses up the dotted line signal was a buy signal. In the example, point 1 (red arrow) shows that the switch to the purple line (MACD) with black dots (MME9). If you do not use MACD in its traditional use, you must purchase value this time.

To understand the reciprocal cross: because it shows the point of sale. Point 2 shows drilling MME9 MACD, which indicates sales value. In this case, IBM has a tendency to fall into the consolidation phase.

Here is what makes success MACD: signal arriving even earlier than detection by crossing MMA20 MMA50 the last lesson. But it is also dangerous, because keep in mind that most indicator reports, the faster it tends to be wrong. Therefore MACD work with other devices to confirm its validity.

We also believe that more MACD is moving away from its signal line and the zero line, the higher the current trend is strong. This means that if you put upward pressure on the value of the intersection point 1, you can let go, even if you are currently form hesitation in progress. In fact, these doubts are just imitation ones you see to the left in August.

The opposite is what will help us to detect a change in trend, so to speak, when the MACD will access its signal line is that there is a change coming. November 6 and 20, the approximation signal MACD line with its warning that there may be future trend changes. These pits are typical warning qu'envoie MACD. In our case, the hinge is just the beginning of December, in point 2. MACD to change direction more clearly approaching its signal line for a few sessions and honestly cut its signal line. Better to burn out faster than once for the benefit gained.

A validation rule is added to this basic rule. See white vertical bars a day, just above the month. They serve as an easy trading days. When MACD crossing with his MME9, we will not return if MACD MME9 were on the same side for a minimum of 14 sessions, which include counting backwards day crossing. This minimum guarantee that it is stable enough for crossing signal MACD line with its terms.

Our case only 8 bar back from point 1 left. It is in general not true! However, the rally was still spectacular. This means that the MACD must be confirmed by other indicators. If we refer to lesson 1, fracture resistance shown in the picture is a good indicator, but too late to constitute in itself an indicator marks the continued rise. Intersection of MLD (Chapter 2) arrives earlier and confirms the likelihood increases.

MACD (Moving Average Convergence Divergence) is a very popular trading indicator developed by Gerald Appel. The default configuration MACD periods are usually 12, 26 and 9. Moving averages momentum indicators generally lag the market. MACD does offer an element of trends.

Graphical analyzes suggest a general line MACD bars display, or both. The attached graph, both are included.

12 represents the average (MA) of 12 bars is changing rapidly. 26 MA slow variation represents an average of the last 26 bars. 9 represents the average change in the previous 9 bars of the difference between fast and slow, and m is usually represented as a grid lines on the screen. This line moves above and below the zero line with no upper or lower limit.

When the price rises above the zero line, it usually confirms a new uptrend. When it goes above the zero line, confirming the new downward trend.

When the histogram bars stretch and begin to move away from the board, we call this divergence (deviation away) and when they become shorter, we call this convergence (converges) Inc..

MACD is arranged in a number of ways. The most popular method seems to be a cross of the zero line. When the price rises above the zero line, confirming the trend of market bulls and traders long .. Since it is a lagging indicator consists of moving averages smoothed moving averages another way to move cross the zero line can occur after the beginning of the inversion. Cross the zero line, however, did not confirm the current trend is in tact and can often be safer entry.

Method of calculation
MACD = MS (Source MME Short) - MS (Source, MS Long);

Typically uses moving averages to 12 to 26 times.

Application for trading:
When the price crosses above the zero line, confirming the downward trend in the market and traders short.

Depending on the volatility of the market cross the zero line May to the end of the rally, leaving most of the money on the table, or to start a rally to capture most of the benefit. Therefore, it is better to use in combination with another indication of filtering unwanted signals that may arise.

Turn aggressive traders enter trades where both MACD lines cross, rather than waiting to cross the zero line, which allows entry much earlier, but probably more likely to be fake-outs and false signals.

MACD (Moving Average Convergence Divergence) is a technical indicator unlimited widely used by chartists.
It is simply the difference between two Exponential Moving Average (EMA) for different periods. The most commonly used are 12 and 26 days for MME.

Representation

MACD can be represented by curve (blue) with MME9 (red) dots or not depending on the parameter setting of graphs. Exponential Moving Average is also called MS: signal.

MACD can also be in the form of histograms.

In both cases, the MACD line (zero) and gives the same information, only the comfort of reading and interpretation depends on the trader or investor.

Interpretation

Two interpretations are possible:

1) with the MACD crossing its signal (MME9).

As an indicator unlimited, it is perfectly fine for trend followers (trend following).
The logic is that it is a long (bullish) above the zero line and the seller (bearish) below, which is not necessary, but this simple interpretation is not enough to benefit over the "trading.
This technique of buying / selling by crossing MACD and the signal is much more profitable. (See chart below it)
To optimize your craft, you can use filters as time indicator like RSI or Stochastic. Another way is to be in harmony with the Moving Average (eg, 20 times) and buying second break when MACD is above its previous signal (in case of purchase).
Finally finished, you will have much better results if you use this technique during two phases of growth (see Stein Weinstein market study phases) if you use technical rebounds in four phases Swales along term.

2) using the difference between price and MACD.

Another very interesting approach is to use the difference between price and MACD. Differences are not signals of purchases or sales, but are there to inform you of the end of the current movement near the turn. (See chart below).
The difference will be confirmed only if the MACD crosses the second time to increase its signal (A). Otherwise, it will be a continuation of the initial movement.

Within a bullish divergence, we must comply with the continued decline in prices to a new low, while at the same time our indicator, MACD fail to realize this new low. Bullish divergence will be confirmed as soon as the indicator will cross again its signal (A).

Within bearish divergence is just the opposite. MACD does not have to make a new high contrast price (stock indices, currencies, etc ...).
It is only when the MACD will cross its signal (V), with bearish divergence will be confirmed.

MACD is one of the most popular indicators. As the name suggests (Moving Average Convergence Divergence) is based on the convergences and divergences in the moving averages.
MACD indicator is unlimited (ie can take all possible values).
It was developed by Gerald Appel (publisher of Systems and Forecasts) allows precise analysis of the exponential moving averages.

This indicator is derived from the difference between two exponential moving averages (EMA) calculated on the closing price. Used with the exponential average of the difference.
MACD is based - in its original version - comparison of two exponential moving averages 26 and 12 days.
It is important to remember that the MME to calculate MACD evolve over fences. Attention to conclusions too quickly from even before the end of the candle!

There are two possible representations of the MACD.
Performance curve: generally used for medium-long term.
A histogram representation: in the short term.
Superposition of two types of representations is possible, but it is important to note that the corresponding scales are different.

The MACD is a good indicator of this trend. Construction based on the MME can mitigate delays obtained with simple moving averages.

Air France The example above shows the performance curve of the MACD.
This image is decomposed into two curves, one (blue) exponential moving average difference of course, the other (red) is the exponential moving average of the difference. The second curve is called the signal line.

Look for a moment the behavior of the curve represents the difference MS at 12 and 26 days (blue curve MACD). MME courses 12 (brown curve) and 26 days (pink curve) were added to the graph. There is a point A1 narrowing MS courses 12 and 26 days. The gap is closing between the two MME because the difference between the voltage drops. Thus, level A2 shows how the MACD is close to 0.
In contrast, the point D1 significant difference between the two MS. MACD therefore reached the summit in D2.
Points B1 and C1 correspond to when the MS 12 and 26 overlap, the difference is zero, MACD is level 0 (point B2 and C2). Between these two points (B1 and C1) MS 12j fall under MME 26j. MACD is negative B2 C2.
Frequency histogram shows additional information. Histogram corresponds to the difference between the MACD (blue curve) and signal line (red curve).
Between point A and B, the signal curve is above the curve MACD, MACD histogram is negative. Contrary to points B and C, curve MACD is above the signal line, MACD is positive.

Formula explanation:

MACD is constructed by the difference between two exponential moving average (EMA).

Gerald Appel chose 9, 12 and 26 as the period for MS.

The method of calculating these MME is plain. The last closing price has more weight than others during the period. This percentage depends on the importance exponential. The method of calculating these MME is involved in moving average form.

With each new fence, the difference between the MS 12 and 26 days. The result will be used to average 8 closing price (the goal is to make SMEs 9 days differences between MS 12 and 26 days).


Psychology:



MACD: Application for Trade and Investment:

There are several ways to interpret the MACD.

First, to identify points. Signal is obtained by the intersection of the curve and the MACD signal line.

Downward signal is indicated when the MACD falls below the signal line.
Signal is up when the MACD crosses the signal line.
Croissements more secure when they appear in these zones suachats and gusts, which corresponds to high levels of MACD.
As you can see from the above example, this method is quite effective. The buy signal (green arrow) is activated when the curve MACD (blue curve) rises above the signal line (red curve). When passing through the curve MACD is bearish signal.

Another method is to look for differences between the price change and the evolution of the MACD. When we talk about divergence indicator is moving in the direction opposite that of course.
There are several species that are listed in the state differences.
The graph shows the divergence Alstom standard called bearish. Courses are developed up while MACD is reduced. MACD gives us an indication of the shortness of the upward thrust. This distinction allows us to say that the rise of a lack of power. Trend weakens.

Example:
The daily chart shows Relevance hidden bullish divergence. Ladies join a new low higher than the previous one, while the MACD formed a new low. This difference confirms the uptrend. Indicator give you everything, but the courts refused to come down. The current trend is strong.
Unlike the standard divergence reflects the weakness of the current trend, the observation of hidden divergence tells us about the strength of the current trend and makes a new low or higher (depending on the direction of the trend) very likely.

Daily chart BIC shows a bearish divergence "hidden"
During the previous mark two consecutive less high, while the second largest MACD is above. The difference indicates that the indicator gave everything, but prices continued to fall. The current trend is strong.
Posted in  on 20:03 by herman |   Edit