Gerald Appel created the Moving Average Convergence and Divergence.Timing trends in a market can be related to technical analysis of stocks and financial products.Many individual traders as well as institutional traders use the MACD to figure out more about where a stock price is likely to go in the immediate futureIf you are considering using this traditional charting tool to make stock decisions, here are some common steps to help you read the MACD.
Step 1: Understand the setup.
There are two separate graph boxes for most MACD interface.There is a candlestick chart in the upper box.Thecandlestick shows the day's opening, closing, high, and low prices on the chart.The MACD graph shows several lines and a histogram.The signal line and the MACD line are the trend lines.The MACD histogram is on top of these lines.
Step 2: Learn how the interface is calculated.
The result of price calculations is part of the interface.Understanding how each part is calculated is necessary for understanding MACD analysis.The box represents the opening and closing prices of the security, while the line out to either side shows the high and low prices.The difference between the 12-day and 26 day exponential moving averages of the security's price is called the MACD line.More weight is given to newer data than a regular moving average.The 9-dayEMA is the signal line.A series of bars show the difference between the signal line and the MACD.
Step 3: Understand the signal line.
The signal line is used as an indicator for timing trades.Depending on your position and the direction of the movement, you should either buy or sell when the signal line crosses the MACD.It can show when there is a change in the momentum of the MACD.This will allow traders to time out price swings.It may be a good time to sell if the signal line crosses and goes below.When the signal line goes above the "bullish" signal, the opposite is true.
Step 4: Understand how the histogram is read.
The difference between the signal line values and the MACD histogram is calculated.When MACD is less than the signal line, the value is positive, above the zero line.The two lines intersect.
Step 5: The MACD line has interpretive moves.
A measure of changes in momentum is called the Moving Average Convergence Divergence.The interplay between the two underlying EMAs is represented by the sign and magnitude.The 12-day EMA is greater than the 26 day if MACD is positive.The 26 dayEMA is greater than the 12 day if MACD is negative.An increasing positive MACD is indicative of an increase in upside momentum.The upside momentum is slowing because of a decreasing positive MACD.A decreasing negative is a sign that the downside is increasing.An increasing negative is a sign that the downside momentum is slowing.
Step 6: Analyze signals that cross over.
A signal is observed when the MACD crosses the signal line.When the MACD is below the signal line, there is a bearish signal.These signals are not always clear.A false signal can be caused by a cross at an extreme MACD value.The price of the underlying security would move dramatically.Depending on the volatility of the underlying security, signals may occur more or less frequently.
Step 7: It's a good idea to read centerline crossovers.
When the zero line is crossed, the MACD line moves about it.Simple changes in momentum are determined by this change.There is upside and downside momentum.
Step 8: Look for divergences.
When the price of the underlying security and the MACD are different, there will be divergences.Imagine if there were two low prices on the graph of the security's price and then a lower low.The second low point was higher than the first and the MACD experienced two low points at the same time.The "divergence" shows that the price of the security is going down, but the downside momentum is decreasing.The MACD is at a higher low.This could be a sign that the security's downtrend is coming to an end.There is a bearish divergence.The price graph might have a higher high than the MACD chart.
Step 9: It is possible to estimate the strength of price swings.
The direction and magnitude of short-term momentum can be identified with the help of the MACD.It tracks the speed of price changes.It's used more to estimate magnitude than direction.The magnitude can be tracked by using the MACD histogram.The bars are high enough to show the strength of the price movement.There is a chance that a trader should prepare to sell.There is a chance that a trader should prepare to buy.
Step 10: You can make trades at signals.
The trader should be prepared to buy or sell the security.The trader should consider buying if the signal is bullish.The trader should think about selling.This is dependent on the nature of the crossover.It's a good idea to be skeptical of a crossover at the extreme of the MACD.
Step 11: The chart resource should be supplemented with other visual tools.
Other resources can shed more light on bullish or bearish signals relevant to a specific time line.The candlestick chart shows highs and lows for each day.The chart shows whether prices trended up or down.This allows traders to look atflickering patterns related to the action of price changes, represented in candlestick charting as "wicks," and make more informed decisions on buying and selling.candlestick charting is an important complement to MACD and is more effective than it is on its own.
Step 12: The historical closing prices should be input.
You can create your own display using Microsoft excel if you don't have access to a pre-created display through trading software.Find the closing prices for the stock you're interested in.You can get this data from a major financial news site.Finance or MarketWatch.Many of these sites will give you the option to download the data as a spreadsheet, so it is pre-formatted for your use.Three month's worth of trading is a good starting point.The closing prices for each day of market activity are included.The date and closing price data should be formatted in column A.
Step 13: The 12-day EMA is calculated.
The more responsive part of the MACD is the 12-dayEMA.The simple average of the first twelve closing prices is used to calculate this.Next to the twelfth closing price is column C.The range of data points in column B will be followed by a closing parenthesis.The range B1 to B12 would be used if your data points started in cell B1.This would give you a completed function.Your function would be placed in cell C12One cell below that function should enter the following: "B cell to the left of this one"The example would have been in cell C13.To fill in the rest of the 12 day EMAs, drag the function down to the bottom of your data.
Step 14: You can fill in the 26 days.
This process is the same as entering the 12-day EMA, except for the fact that the equation is slightly different and that you start on the 26th closing price.In column D, next to the 26th closing price, enter the following: "AVERAGE" and then the relevant data points, followed by a closing parenthesis."This would be in cell D26, in the example.In the next cell, type in the following: B cell to the left of this one and D cell above it.The example would be: B 27* (2/27)+D26* (1-(2/27).To fill in the rest of your data, click and drag this formula.
Step 15: There is a way to find MACD.
In column E, the MACD will be shown.In the example, type in: "C26-D26" next to cell E26The result of the MACD on that day.After that, click on this cell and drag it to the bottom of the sheet to get all the other measurements.
Step 16: The signal line can be calculated.
The signal line is similar to the two previous data points.The ninth MACD value should be next to column F.Then, type in: "AVERAGE(E26:E34)".If your first nine EMA values are in different cells, you can change the range.Then, one cell below that, type in "E35*(2/10)+F34(1-(210))".If your data are different, adjust the referenced cells.To fill in the last of your data, drag the formula to the end of the data points.
Step 17: You can chart your data.
You can use your completed data to create a display.If you want to show your MACD and signal lines as a line graph, use the graph tools in excel.The price can be compared to the 12 and 26 day EMAs.