A moving average convergence divergence (MACD) indicator is a charting tool which tracks the relationship of two exponential moving averages based on the same security. It is widely used in momentum-based investment.
The MACD is found by taking the exponential moving average (EPA) of a security over two different time frames (typically 12 days and 26 days), and subtracting the EPA of the longer time frame from that of the shorter timeframe.
Typically, the MACD is shown as a line graph in combination with a signal line showing the exponential moving average of the same security tracked by the MACD, but over a different term (typically 9 days).
Example: The exponential moving average price of a stock over a 26-day period is 73.30 Swiss francs. The exponential moving average price of the same stock over a 12-day period is 72.95 Swiss francs. In this case, the stock’s MACD is -0.35 Swiss francs (CHF 72.95 - CHF 73.30).
When the line tracking the MACD crosses below the signal line, this indicates a decline in demand (a bearish market) for the investment being tracked. When it crosses above the signal line, this indicates a rise in demand (a bullish market) for the investment being tracked.
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