MACD stand for Moving Average Convergence-Divergence. MACD is a momentum and trend following lagging indicator. It is typically used to identify changes in the strength, direction of a trend in a chart price. As its name might indicate, MACD offers traders three main signals and or interpretations. Its signals can function as a trigger for buying or selling.
- Crossovers: A bearish signal is commonly read when the signal line crosses above the MACD line mostly above the zero line. When the signal line crosses below the MACD line and usually below zero is a bullish sign.
- Divergence: When a chart price diverges from the MACD it signals either the end of the current trend or that the chart price is into possible expansion.
- Momentum: When the MACD line and the signal line remains above zero it could signal upward momentum, therefore when it remain below zero signals possible downward momentum.
MACD and Other Indicators
Many traders use at least three indicators to establish a correlation between indicators and the strength of the signal. With help from others indicators, traders sometimes can identify positive signal and false negative signal. False signals are very common when following a trend while positive signal are best identified when a long or short term trend is changing direction.
Most used technical indicators in conjunction with MACD are:
- Moving Average 12,22, 50 and 200.
- ADX (Average Directional Index)