Moving Average Convergence/Divergence
MACD is a reliable momentum indicator that tracks the trend and is used quite frequently in technical analysis. It was designed by Gerald Appeal in the late 1970s. This indicator; It basically studies moving averages. It is used by traders to identify possible buying and selling points.
MACD Line : It is obtained by subtracting the 12-day (short-period) exponential moving average from the 26-day (long-period) exponential moving average.
Signal Line : Signal line represents the 9-day exponential moving average.
Histogram : The histogram fluctuates above and below a centerline, also referred to as a zero line,with the other two lines. It shows the difference between the MACD line and the signal line.
- If the MACD line is below the Signal line, the histogram occurs in the Negative Zone.
- If the MACD line is above the Signal line, the histogram line is formed in the Positive Zone.
- If the MACD line crosses the Signal line, the histogram is on the zero line.
The relationship of the MACD line to the zero line and signal line is an indication of certain buy-sell signals. The fact that the MACD line turns upwards and starts to rise above the zero line is an indication that the trend will rise, and that the trend will go down when it starts to go down.
The increase in histogram length in the positive area indicates that momentum is increasing in the buy direction, and the shortening again indicates that the buy is decreasing. The increase in the length of the histogram in the negative region indicates that the momentum in the direction of selling increases, and the shortening again indicates that the sales are decreasing.
If the MACD line crosses the signal line in the negative region, this can be considered as a strong buy signal. On the contrary, if the MACD line crosses the signal line in the positive area, it can also be considered a strong sell signal.
If the MACD line crosses above the signal line in the positive region, this can be considered as a weak buy signal. Conversely, if the MACD line crosses below the signal line in the negative region, this can be considered a weak sell signal.