The moving average convergence divergence (MACD) is a technical indicator used in investing. It is one of the most common tools investors and traders use to try to spot trend chanꦿges, which can help guide smart trading choic✱es.

The MACD measures a stock's momentum and can aid investors in 🍬spotting shifts in that momentum that may indicate price turning points.

Understanding the MACD

Changes in price trends are almost always preceded by changes in momentum, which is the rate at which stock prices are rising or falling. Changes in momentum can 澳洲幸运5开奖号码历史查询ﷺ:easily be♉ detected with the MACD indicator.

The MACD was developed by Gerald Appel, whose goal was to chart momentum by measuring the relationship between two 澳洲幸运5开奖号码历史查询:exponential moving averages (the default setting for the indicator is the 12-day and 26-day averages).

To confirm changes in momentum, a nine-day exponential 澳洲幸运5开奖号码历史查询:moving average is added as a 澳洲幸运5开奖号码历史查询:signal line (the red line in Figure 1). Roughly speaking, a 澳洲幸运5开奖号码历史查询:buy signal occurs when the MACD line crosses a🎀bove the signal line, and a sell signal occurs when the MACD line falls below the signal lওine. To optimize these signals, 12- and 26-day moving averages for long-term signals and seven and 18-day moving averages for short-term signals are ideal.

Using MACD Channels

It is common to draw trendlines on a stock chart to discover patterns in how that security's price is rising or falling. You can also draw trendlines on the indicators, such as the two-line MACD. Drawing support and 澳洲幸运5开奖号码历史查询:resistance leve♏ls creates a channel🦩 of action that offers a clearer picture of the trend's momentum.

If the two moving averages are diverging, then momentum is increasing, and if they are converging, th🎀en momentum is weakening. The distance between the two is graphed in what is called a MACD line, as seen in black in Figure 1.

In Figure 2, we measured the stock's trend strength by creating a channel. To create the channel, draw support by connec꧒ting the bottoms and determine the return line by connecting the tops of the MACD.

MACD and Divergence

In November 2008 and then in February 2009, the MACD created lower highs while the stock price created equal highs; this is called 澳洲幸运5开奖号码历史查询:divergence and tells investors that the stock is losing momentum. Investors could choose 澳洲幸运5开奖号码历史查询:short positions when the MACD line bounces down off resistance. The short position may be covered when the MACD line reaches support at the channel's bottom or for long-term trades when the channel is broken like it was near the end of April 2009.

If we had looked at Figure 3 in July 2008, we may have noticed that the MACD was making higher lows and diverging from the stock price.♒ This phenomenon is called divergence, and is one of the strongest signals of a possible reversal. In November, the reversal was confirmed when the MACD created a major higher low, demonstrating a buildup in bullish momentum.

January 2009 saw the stock make a brand-new high when it broke long-term resistance. However, the MACD showed that momentum wasn't confirming the breakout. The MACD kept falling as the stock attempted to establish support near the $80 level. When the stock broke support, the MACD broke its support line, confirming that the stock would not maintain its 澳洲幸运5开奖号码历史查询:current price level and investors should 🌠sell their shares.&📖nbsp;

The Bottom Line

The strength of the current trend can be measured by 澳洲幸运5开奖号码历史查询:channeling the MACD. Spot trend reversals by looking for divergences in momentum as measured by the MACD channel. Determine the buy and sell signals using the MACD 澳洲幸运5开奖号码历史查询:crossovers or bounces off the chꩲannel's lines. Learning to implement and recognize these signals helpꦿs investors increase their profits when trading short and intermediate-term trends.