MACD

Moving Average Convergence/Divergence

The MACD is a trend following momentum indicator that shows the relationship between two moving averages of prices.

MACD has three outputs: MACD, MACDHist, MACDSignal.

INTERPRETATION:

• Crossovers: The basic MACD trading rule is to sell when the MACD falls below MACDSignal line. Similarly, a buy signal occurs when the MACD rises above MACDSignal line. It is also popular to buy/sell when the MACD goes above/below zero.
• Overbought/Oversold Conditions: When MACD rises dramatically it is likely that the security price is overextending and will soon return to more realistic levels.
• Divergences: An indication that an end to the current trend may be near when the MACD diverges from the security. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.