Moving Average Convergence and Divergence (MACD)
Definition:
Moving Average Convergence and Divergence (MACD) is the difference between a fast exponential moving average (fast EMA) and a slow exponential moving average (slow EMA). The name was derived from the fact that the fast EMA is continually converging towards and diverging away from the slow EMA. Charting programs show the difference between the two moving averages (the MACD) plotted as green or blue vertical lines, and a red signal line plotted over the MACD which is a moving average of the MACD line.
Interpretation:
The MACD can be a very helpful technical indicator, and is subject to several conventional interpretations which can all be useful depending on your trading and investment philosophies. One interpretation is that a positive MACD value is a bullish signal, and a negative MACD value is a bearish signal.
The crossover interpretation posits that the signal line can be used alongside the MACD to determine the appropriate entry and exit point. (The signal line is a moving average of the MACD line). When the MACD falls below its signal line, it can be considered a sell signal. Similarly, a buy signal can be interpreted when the MACD rises above its signal line.
A third popular method of interpretation is that when the MACD is making new highs or lows, and the price is not also making new highs and lows, it signals a possible trend reversal. This type of interpretation is often verified with an overbought/oversold oscillator.
MACD Slope Indicator
The MACD slope indicator is based on the MACD. The MACD slope indicator plots the change in the slope of the MACD signal line. When the slope changes from positive to negative, a red arrow is plotted, possibly indicating prices heading lower. When the slope changes from negative to positive, a green arrow is plotted, possibly indicating higher prices ahead. MACD Delta
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