MACD

The MACD ( Moving Average Convergence / Divergence ) (in English: indicator for the convergence / divergence of the moving average) is a trend-following technical indicator . It was introduced by Gerald Appel in 1979 and is often used because of its versatility. The MACD is calculated from the difference between two exponential moving averages . For the analysis it is mostly used in connection with a signal line (trigger).

calculation

The basis for calculating the MACD are two different exponentially weighted moving averages (EMA). Then from the values ​​of the shorter average ( almost ) those of the longer ( slow ) are subtracted, and the result is the MACD:

${\displaystyle {\begin{aligned}MACD^{(l_{\text{Fast}},l_{\text{Slow}})}(t)\!\ &=EMA(C,l_{\text{Fast}})-EMA(C,l_{\text{Slow}})\\Signal^{(l_{\text{Signal}})}(t)\!\ &=EMA(MACD^{(l_{\text{Fast}},l_{\text{Slow}})}(t),l_{\text{Signal}})\end{aligned}}}$

The exponential average weighting factor for the MACD calculation is ${\displaystyle \alpha }$

${\displaystyle \alpha ={\frac {2}{l+1}}}$

Here stands

• t for the time index,
• C for the closing price (Close),
• l for the weighting factor of the previous average.

The associated value of the time series is taken as the starting value for the first value of the EMA. In other words, if you use the closing prices as a time series and these start at , then this is . ${\displaystyle t=1}$ ${\displaystyle EMA(1,C,w)=Close(1)}$

Appel used the default setting (12 days / 26 T / 9 T) for the shorter / longer moving average / moving average of the signal line on the weekly chart as this was in line with his observation of market cycles. Originally, he also used different parameters for buy and sell signals. For the latter, he chose longer period settings. However, the parameters mentioned have remained the only standard values.

As a rule, the closing prices of the selected time unit are used for the short-term and long-term exponential average.

Signal line and MACD are each represented as a line in a two-line model.

These standard settings can be changed at will to adapt the MACD to your own strategy.

interpretation

Representation of buy and sell signals from the MACD

Trending

• A positive MACD indicates an upward trend, a negative MACD a downward trend.
  • The distance of the MACD from its zero line indicates the strength of the trend. The trend strength increases with increasing distance.
  • If the distance between the signal line and the MACD increases, the trend increases; if the distance decreases, the trend becomes weaker.
• A buy signal arises when the MACD crosses the signal line from bottom to top: and . ${\displaystyle MACD(t-1)<Signal(t-1)}$ ${\displaystyle MACD(t)>Signal(t)}$
  • When the cross is reversed, sell signals can be generated ( note : different parameter sets can be used for buy and sell signals (see above)).
  • The zero line can also be used instead of the signal line.

Divergences

The MACD is also used in what is known as divergence analysis . Here a search is made for new extreme values ​​in the course that are not confirmed in the MACD.

If the price reaches higher highs, for example, and these are not confirmed by new highs in the MACD, one speaks of a bearish divergence . This indicates a possible trend change as the upward swing is weakening.

The opposite applies to lower lows in the price that are not confirmed in the indicator ( bullish divergence ).

Individual evidence

1. ↑ ^{a b} Rene Rose: Encyclopedia of Technical Indicators , ISBN 3898791041 , MACD section