How Do You Use An MACD Indicator?
The moving average convergence divergence, or MACD, is one of many tools in the arsenal of a technical trader. Developed in 1979, it remains a popular, if often misunderstood indicator. There are several different elements to the MACD, which is one reason for confusion. The indicator charts the 12-day and 26-day exponential moving averages, and uses a histogram to reflect the difference between these two lines. Watch for divergence. The most potent use for MACD is to spot divergences in price action. A divergence occurs when the trend in the MACD and actual price begin to move in opposite directions. For example, if a down-trending stock makes a new low in price, but while MACD does not reach new lows and actually moves upward, this is a positive divergence and suggests a buying opportunity. The opposite would be a negative divergence and suggests a chance to sell. Spot centerline crossovers. The centerline, or zero-line, is the place where the difference between the fast and slow movi
