Moving Average Convergence/Divergence

The Moving Average Convergence/Divergence chart, also known as the MACD chart, is a momentum indicator that uses the relationship between two exponential moving averages to provide insight into market trend accelerations. The chart incorporates market data from our proprietary data warehouse and is displayed as a line graph chart with a scale of zero to 1600.

On the chart, there are two oscillating lines: one labeled Signal and the other labeled MACD. The MACD line is a subtraction of the 26-period exponential moving average (EMA) from the 12-period EMA. The Signal line is a nine-day EMA of the MACD line. A trader should focus on both the level and direction of these Signal and MACD lines.

When the MACD line rises above zero, it is considered bullish, while dropping below zero is seen as bearish.

If the MACD line crosses above the Signal line, then this indicates upward momentum in the asset’s price, which may appeal to traders looking for an entry. The further below the zero line that this cross occurs, the stronger the entry signal.

Conversely, if the MACD line falls below the Signal line, that indicates downward momentum, which traders may take as an exit signal. The further above the zero line this cross occurs, the stronger the exit signal.

Our MACD chart also contains a histogram that further illustrates the daily distances between the MACD and Signal lines. When the MACD sits above the Signal line, a histogram bar will sit above the zero line. The further the MACD line is above the Signal line, the taller the bar and the more upward momentum is present in the market.

Reading the MACD chart in conjunction with a candlestick chart to judge the trending price action may also reveal stalling or reversal signals. For example, when bullish price action reaches a new higher high but is not confirmed by a new high on the MACD chart. Consulting additional charts within the Range Report such as the ADX and RSI charts will help confirm the strength of the MACD chart’s signals.

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