MACD Trading Indicator Oscillator Technical Analysis Fast Line and SignalLine
MACD indicator is used in various ways to give technical analysis info.
- MACD centerline crosses reflect bullish or bearish markets: below the zero is bearish, above zero is bullish.
- MACD Cross-overs indicate a buy or sell signal.
- Oscillations can be used to indicate oversold and overbought regions
- Used to look for divergence between price and indicator.
Construction of MACD
The MACD indicator is constructed using 2 exponential MAs & this indicator plots two lines. The two default exponential MAs used are 12 and 26. Then a smoothing factor of 9 is also applied when drawing MACD indicator.
Summary of how MACD indicator is drawn
MACD uses 2 EMAs + a smoothing factor (12, 26 Exponential MAs Moving Averages and 9 smoothing periods)
MACD only plots two lines - the MACD fast line & the MACD signal line
MACD Lines - MACD Fast Line & MACD Signal-lines Indices Signals
- The Fast Line is the difference between the 26 EMA and 12 EMA
- The Signal-line is the 9 period moving average of the MACD fast line.
Implementation of MACD
MACD indicator implements MACD line as a continuous line while the signal line is implemented as a histogram. These 2 MACD LINES are then used to generate signals using the cross-over strategy.
There is also the MACD center-line which is also known as the zero mark and it's a neutral point between buyers & sellers trading the markets.
Values above the center-mark are considered bullish signals while those below are bearish signals.
The MACD indicator being an oscillator indicator, oscillates above & below this center line.
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