The MACD is used to determine overbought or
oversold conditions in the market. Written for stocks and stock indices, MACD can be used
for commodities as well. The MACD line is the difference between the long and short
exponential moving averages of the chosen item. The signal line is an exponential moving
average of the MACD line. Signals are generated by the relationship of the two lines. As
with RSI and Stochastics, divergences between the MACD and prices may indicate an
upcoming trend reversal. The MACD is a trend following momentum indicator that shows
the relationship between two moving averages of prices.
The MACD is the difference between a
26day and 12day exponential moving average. A 9day exponential moving average, called
the "signal" (or "trigger") line is plotted on top of the MACD to show
buy/sell opportunities.
The MACD is calculated by subtracting the
value of a 26day exponential moving average from a 12day exponential moving average. A
9day dotted exponential moving average of the MACD (the "signal" line) is then
plotted on top of the MACD.
