Components of the MACD
The MACD is made up of two exponential moving averages (EMAs) a short-term EMA and a long-term EMA plotted against each other on a chart. The first EMA is the 9-period EMA, which is the short-term moving average, and the second EMA is the 26-period EMA, which is the long-term moving average.
- The 9-period EMA is plotted on the y-axis (the bottom line) and the 26-period EMA is plotted on the x-axis (the top line).
- The MACD line is the difference between the two EMAs.
- The signal line is the 9-period EMA subtracted from the MACD.
- The histogram is the difference between the MACD and the signal line. - The center line is the 9-period EMA added to the 26-period EMA.
How to read the MACD
The MACD is made up of two EMAs and a few lines that are plotted on an investment chart. The MACD line is the difference between the two EMAs (9-period EMA minus 26-period EMA), the signal line is the 9-period EMA subtracted from the MACD, the histogram is the difference between the MACD and the signal line, and the center line is the 9-period EMA added to the 26-period EMA.
The MACD line represents the trend of a security’s price. If the MACD line is increasing, the security’s price is trending higher and the MACD line is rising. If the MACD line is decreasing, the security’s price is trending lower and the MACD line is falling.
The signal line represents the strength of a security’s trend. If the MACD line is above the signal line, the security’s price is trending higher and the trend is strong. If the MACD line is below the signal line, the security’s price is trending lower and the trend is weak.
The histogram is the difference between the MACD line and the signal line. When the MACD line is above the signal line, the histogram is positive and vice versa. The center line is the average of the MACD line and the signal line. If the MACD line is above the center line, the security’s price is trending higher and the trend is strong. If the MACD line is below the center line, the security’s price is trending lower and the trend is weak.
Benefits of using the MACD
- It is an easy-to-use technical analysis tool.
- It is suitable for both short-term and long-term traders and investors.
- It can be used as a standalone trading indicator or in conjunction with other technical indicators.
- It can help traders identify trend reversals and overbought/oversold conditions.
- It can be used on any financial instrument and any charting platform.
MACD settings
There are no set MACD settings that traders must use and there is not a single MACD setting that works best in all situations. Traders can set the MACD to any two EMA periods they prefer, as long as they are consistent in the EMA periods they use. The MACD can be used with 9-periods and 26-period EMAs or 12-period and 26-period EMAs. The MACD can be used on any financial instrument and any charting platform. Traders just need to make sure that they set the two EMAs to the periods that work best for them. The MACD can be used on any financial instrument and any charting platform. Traders just need to make sure that they set the two EMAs to the periods that work best for them.
MACD crossover signals
When the MACD line crosses above the signal line, it is an indication that the security’s price is trending higher and the trend is strong. When the MACD line crosses above the signal line, traders can execute a long position when the security’s price is at or near the current price and the MACD line is rising. When the MACD line crosses below the signal line, it is an indication that the security’s price is trending lower and the trend is weak. When the MACD line crosses below the signal line, traders can execute a short position when the security’s price is at or near the current price and the MACD line is falling.
