MACD, short for Moving Average Convergence/Divergence, is an electronic trading indicator developed by Gerald Appel in late 1970’s. It is a technical analysis indicator used in technical charting of underlying stock prices, designed to show changes in a trend’s strength, direction, length, and price macd indicator. The MACD uses moving averages, which are typically lagging indicators, to show the direction of price movements in the market. By using moving averages, it can be shown that a certain trend will likely continue upward or downward over a given period of time. In short, this indicator helps traders make good moves in their transactions and gives them an idea when to make buying or selling decisions.
There are several versions of the MACD indicator, each one showing different interpretations of the MACD concept. Traders who use the MACD indicator need to select the version that best explains and matches their research. There are also versions of the MACD indicator that use only a 12-day or a 26-day moving average as the basis for computing the MACD signal; however, most traders find it more useful to combine both the versions of the MACD indicator to get a better picture of the trading signals.
Basically, the MACD indicator finds the average moving averages of the closing prices of the underlying stock over a period of at least a week. The MACD signal line is drawn through the data points, where the moving averages are indicated. The MACD shows a clear signal line over a period of at least a week as the average of closing prices is plotted on a weekly chart. The MACD indicator should not be confused with the MACD calculator, which is a tool for computing the MACD over an arithmetic average of the closing prices over a period of time. The calculator uses other data, like the average of the prices of securities in the index, to compute the MACD signal line.