Moving Average Convergence Divergence (MACD)

What Is Moving Average Convergence Divergence (MACD)?

Moving Average Convergence Divergence is a technical analysis method as part of a trend-following momentum indicator that shows the relationship between two price moving averages.

The calculation is done by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA.

MACD was developed by Gerald Appel in the 1970s and is used by cryptocurrency traders to assess market momentum and identify potential entry and exit points, as well as price behaviors.

The MACD line specifically tells traders when the 26-day EMA and 12-day EMA are changing compared with their original positions.

A moving average, which is used to calculate MACD, shows the average value of past data over a specific time period.

There are mainly two types of moving averages: Simple moving averages and exponential moving averages.

The latter focuses more heavily on newer data, while the former assigns equal importance to all data.

To calculate the MACD Indicator, two exponential moving averages are subtracted from one another and the figures are plotted to generate the MACD line.

The MACD line is then used to calculate another exponential moving average which reflects the signal line.

On the otherhand, the MACD histogram shows the differences between both lines.

Both the lines and the histogram oscillate both below and above a line called the zeroline.

To summarize, there are three main parts associated with MACD.

These are the MACD line which indicates either an increasing or decreasing market trend, the signal line which is the exponential moving average of the MACD line, and the Histogram which shows the differences between both lines.