What Is MACD?

MACD indicator is indisputably very popular momentum(trend) indicator used in technical analysis in stock market. MACD is a acronym used for Moving Average Convergence Divergence. MACD indicator is a combination of two different exponential moving average.

Out of the two moving averages one is of shorter time period(12day EMA) and the other longer time period(26day EMA). It gets calculated by subtracting 26 day EMA from 12day EMA. This results in giving a MACD line. After that, a 9day ema also called as signal line is plotted on the top of the MACD line to generate a trigger for buy and sell signal for any stock or index.

One can buy(go long) the security when the MACD(line) crosses above its signal line(9day EMA line) and sell (go short) the security when the MACD crosses below the signal line.