The moving average convergence divergence (MACD) is calculated by subtracting the 26-period EMA from the 12-period EMA.
When the MACD crosses above (buy) or below (sell) its signal line, it generates technical signals.
Important Takeaways By subtracting the 26-period exponential moving average (EMA) from the 12-period EMA, the Moving Average Convergence Divergence (MACD) is determined. When MACD crosses above (buy) or below (sell) its signal line, technical signals are generated.
When the moving averages approach one other, convergence occurs. Moving averages diverge when they move away from each other. The 12-day moving average is faster and is responsible for the majority of MACD fluctuations.
When the price makes lower swing lows while the indicator makes higher lows, this is known as bullish divergence. Its purpose is to indicate that selling momentum is waning and that the downtrend is becoming more vulnerable to reversal.
The MACD is smoothed further to produce a signal line, which is a 9-day exponential smoothing of the MACD that is used to provide trading suggestions. The MACD, a variant of the moving average crossover system, advances in uptrends and declines in downtrends.
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