In the late 1970s, a famous trader and analyst, Gerald Appel, created the Moving Average Convergence Divergence, or MACD. Now, the MACD helps traders worldwide to understand how stock prices move and when they might change direction.
The MACD is designed to reveal changes in a trend’s strength, direction, and duration in a financial instrument’s price, providing valuable insights for traders and investors. It helps traders identify potential trend reversals, continuation, and overbought or oversold market conditions.
First, MACD uses two moving averages (lagging indicators) to determine trend direction and duration. After that, MACD plots the difference between those two Moving Averages (MACD line) as a histogram oscillating above and below a center zero line as the difference in values between those two Moving Averages (MACD line) and an EMA of those Moving Averages (Signal Line).
Practice: calculate MACD for opening a trade in Sema
MACD Line – (12-day EMA – 26-day EMA)
Signal Line – 9-day EMA of MACD Line
MACD Histogram – MACD Line – Signal Lin
- Let’s take the difference between two exponential moving averages, 12-day EMA and 26-day EMA, and get MACD Line.
- Then from the resulting MACD Line, we take the 9-day EMA again and finally get the Signal Line.
- Draw a histogram with the difference between the MACD and Signal Line.
Standard parameters are: MACD(12,26,9)
The MACD line results from taking the longer-term EMA and subtracting it from the shorter-term EMA. The most commonly used values are 26 days for the longer-term EMA and 12 days for the shorter-term EMA. For the signal line, a period of 9 is taken.
How to display MACD in Sema?
To see MACD on a chart, press on the hexagon icon in the right corner of a coin chart. Choose MACD to display the MACD indicator on your chart. You can switch between candles and line format right above.