MACD stands for Moving Average Convergence Divergence, and it is a technical analysis indicator used to analyze trends in financial markets. It is a popular tool used by traders and investors to identify potential buying and selling opportunities.
MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. This calculation creates a line called the MACD line. A 9-period EMA is then plotted on top of the MACD line, which creates a signal line. The MACD line and the signal line crossing over each other can indicate a potential trend reversal.
The MACD indicator is often used in conjunction with other technical analysis tools, such as trend lines, support and resistance levels, and candlestick patterns. Traders and investors use MACD to identify potential buy and sell signals, as well as to confirm trends and market momentum.
A bullish signal is generated when the MACD line crosses above the signal line, indicating that the short-term moving average is rising faster than the long-term moving average, and the price may continue to rise. A bearish signal is generated when the MACD line crosses below the signal line, indicating that the short-term moving average is falling faster than the long-term moving average, and the price may continue to fall.
Overall, MACD is a widely used indicator in technical analysis and can be a useful tool for traders and investors to identify trends and potential opportunities in financial markets.
Example:
A bearish signal was generated on SPY a few days ago when the short-term moving average fell below the long-term moving average. You will notice in the middle indicator that plots the MACD on multiple timeframes the daily and two-day timeframes are negative while the week is still positive.