MACD Indicator

Moving Average Convergence-Divergence

MACD is one of the most popular technical indicators. It was invented by Gerald Appel in the 1970’s. While it is widely known as MACD, its full name is Moving Average Convergence-Divergence.

MACD is based on two exponential moving averages of closing price with different period lengths. MACD measures how close or far the two moving averages are and what is the tendency in their distance – whether they are getting closer (convergence) or further away from one another (divergence).

MACD in Charts and MACD Line

On charts MACD is typically displayed as two lines (some people prefer to display the first one as histogram to better distinguish between the two). The first line plots the value of the MACD itself and it is called the MACD Line. It is the distance between two exponential moving averages.

How to Calculate the Value of MACD

Calculation of the MACD line’s value is straightforward. Take two exponential moving averages (EMA) of closing price with different period lengths and subtract the value of the longer period average from the value of the shorter period average:

MACD Is an Oscillator, But…

We can say MACD is an oscillator, as it oscillates around zero. But unlike most other oscillators, MACD has no (explicit) overbought and oversold areas. It also doesn’t have a percentage or standardized scale (like 0 to 100 or -100 to 100).

MACD is measured in the same units as the underlying market’s price (dollars, euros) and theoretically there are no limits on the values MACD can reach, as the two exponential moving averages can in theory move infinitely far away from one another. In reality MACD tends to come back to zero relatively soon.

MACD Line Values and What They Mean

The MACD line is:

MACD Signal Line

The second line displayed in MACD charts is called the Signal line and it is nothing more than another exponential moving average – but this time moving average of the MACD line and not price.

Popular MACD Settings

With MACD you need to set 3 parameters:

The most widely used values for these three are 12, 26, and 9 respectively – this is what you will most likely find as default in your charting software.

Sensitivity of MACD to Different Settings

Changing these parameters does not play very significant role (unless you change it to something like 3, 60, and 20 of course). Changing the difference, or rather the ratio of the first two parameters (longer and shorter price EMA period) usually has the biggest impact on the looks of the MACD, as it directly affects the behaviour of the distance between the two exponential moving averages (the MACD line value). The greater the difference between the two periods, the more volatile the MACD will look.

MACD Histogram

You may also encounter the term MACD Histogram. It doesn’t mean the MACD line being displayed as histogram. It is a different indicator, derived from the relationship between the MACD line and the Signal line. MACD Histogram is calculated by subtracting the signal line from the MACD line, therefore it is something like MACD-Signal line Convergence-Divergence. See more details about MACD Histogram.


Related pages


hedge fund 13f filingsannualizing volatilityge stock futuresdifference between options and forwardstheta optionstock market return calculator historicalcboe implied volatilityrsi indicator calculationspy spxdetermining portfolio weightsexcel log formulaetracsat yahoo.com symbolstraddle option strategyblack scholes 76advantages and disadvantages of weighted average methodcumulative function in excelformula for skewsharp ratio definitiondjia weightinggreek vegavolatility calculatorputting in excel formulasmacd formulaincentric valueexcel formulas explainedtrading vix derivativesvix futures term structurecoefficient of skewnessaverage real return formulastatistics skewness and kurtosisbutterfly spread payoff diagramsum of squared deviationshow to calculate the standard deviation in exceleuropean option calculatorkurtosis valuedelta symbol in excelvix etn liststandard deviation formula calculatorkurtosis and skewness normal distributioncboe delayedcalculate the sample variancevix chicagocall option payoff diagramnormdist functionyahoo share prices historyformula to calculate average in excelformula of variance for ungrouped datamsft historical stock pricesspx chartblack scholes calculator with dividendslist of leveraged etfsample variance formula in excelblack scholes simplifiedexcel calculations formulassample mean excelnatural log excelformula for skewdistribution kurtosismeasure skewnessblack scholes equationdefinition of kurtosisciti stock splitsharp ratio definitionrsi oversoldharmonic mean excelusing excel to calculate standard deviationhow to interpret implied volatilitysquare root multiplied by a square rootcut your losses originvxzwhat is gamma in financenatural logarithm excelstock volatility calculator