Moving Average Convergence Divergence
MACD is a simple indicator based on moving averages. Gerald Appel designed the MACD to take advantage of the trend following characteristics of moving averages. It measures the difference between two exponential moving averages. TradeWithPros utilizes the default setting, a 12 and 26 moving average, but many traders adjust this setting to suit their own trading styles. The MACD is a momentum indicator.
If the 12 EMA is above the 26 EMA, the MACD is positive, if the 12 EMA is below the 26 EMA the MACD is negative. A positive up sloping MACD with widening moving averages shows increasing momentum to the long side. A negative down sloping MACD with widening moving averages shows increasing momentum to the downside.
Traders also look for divergence, trendline breaks and patterns in the MACD. Do not use this indicator solely on its own.
Below is IBM with the MACD.
