{"id":5365,"date":"2021-10-29T14:28:51","date_gmt":"2021-10-29T08:58:51","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=5365"},"modified":"2021-10-29T14:28:52","modified_gmt":"2021-10-29T08:58:52","slug":"moving-average-convergence-divergence","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/","title":{"rendered":"What is MACD &#8211; How To Use Moving Average Convergence Divergence Indicator"},"content":{"rendered":"\n<p>Traders and analysts use many <a href=\"https:\/\/www.tickertape.in\/blog\/technical-analysis-of-stocks\/?utm_source=blog&amp;utm_medium=article\">technical analysis<\/a> tools when picking stocks or when attempting to predict the stock\u2019s future movements. The <a href=\"https:\/\/www.tickertape.in\/blog\/technical-analysis-of-stocks\/\">technical analysis<\/a> tools consider the historic price movements of stocks and then make trend and momentum analysis. One technical indicator that is popularly used is the MACD indicator. Let\u2019s understand what MACD is and how it works.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#This-article-contains\" title=\"This article contains:\">This article contains:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#What-is-MACD\" title=\"What is MACD?\">What is MACD?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#Construction-of-the-MACD-indicator\" title=\"Construction of the MACD indicator\">Construction of the MACD indicator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#Using-the-MACD-indicator-to-read-trade-signals\" title=\"Using the MACD indicator to read trade signals\">Using the MACD indicator to read trade signals<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#Using-the-MACD-line-and-0-line\" title=\"Using the MACD line and 0-line\">Using the MACD line and 0-line<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#Using-the-MACD-line-and-the-signal-line\" title=\"Using the MACD line and the signal line\">Using the MACD line and the signal line<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#The-concepts-of-convergence-and-divergence\" title=\"The concepts of convergence and divergence&nbsp;\">The concepts of convergence and divergence&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#MACD-trading-strategies\" title=\"MACD trading strategies\">MACD trading strategies<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#The-crossover-strategy\" title=\"The crossover strategy\">The crossover strategy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#The-histogram-reversal-strategy\" title=\"The histogram reversal strategy\">The histogram reversal strategy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#The-zero-cross-strategy\" title=\"The zero-cross strategy\">The zero-cross strategy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"This-article-contains\"><\/span><strong>This article contains<\/strong>:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li><a href=\"#what\">What is MACD?<\/a><\/li><li><a href=\"#construction\">Construction of the MACD indicator<\/a><\/li><li><a href=\"#using\">Using the MACD indicator to read trade signals<\/a><\/li><li><a href=\"#concepts\">The concepts of convergence and divergence<\/a><\/li><li><a href=\"#trading\">MACD trading strategies<\/a><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what\"><span class=\"ez-toc-section\" id=\"What-is-MACD\"><\/span><strong>What is MACD?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The MACD full form is Moving Average Convergence Divergence. MACD is a technical indicator that indicates the trend and momentum of a stock by using its <a href=\"https:\/\/www.tickertape.in\/blog\/exponential-moving-average\/\">Exponential Moving Average<\/a> (EMA). The MACD measures the relationship between the EMAs of two periods and helps the investor make decisions for trading.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"construction\"><span class=\"ez-toc-section\" id=\"Construction-of-the-MACD-indicator\"><\/span><strong>Construction of the MACD indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The MACD indicator consists of the following things:<\/p>\n\n\n\n<ul><li>A MACD line<\/li><li>A signal line<\/li><li>A histogram<\/li><\/ul>\n\n\n\n<p>Using these three inputs, the MACD chart is drawn which, then, tells the supposed market trends, based on which an investor can take a call on whether to buy or sell a stock.<\/p>\n\n\n\n<p>The value of all the aforementioned inputs is derived as follows:<\/p>\n\n\n\n<ul><li>MACD line = 12-period EMA &#8211; 26-period EMA<\/li><li>Signal line = 9-period EMA<\/li><li>Histogram = MACD line &#8211; signal line<\/li><\/ul>\n\n\n\n<p><strong>Here\u2019s how the MACD indicator looks:<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-style-default\"><img loading=\"lazy\" decoding=\"async\" width=\"1214\" height=\"702\" src=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/Screenshot-2021-10-26-at-4.11.02-PM.png\" alt=\"\" class=\"wp-image-5370\" srcset=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/Screenshot-2021-10-26-at-4.11.02-PM.png 1214w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/Screenshot-2021-10-26-at-4.11.02-PM-300x173.png 300w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/Screenshot-2021-10-26-at-4.11.02-PM-1024x592.png 1024w\" sizes=\"(max-width: 1214px) 100vw, 1214px\" \/><figcaption>Source: Fidelity.com<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"using\"><span class=\"ez-toc-section\" id=\"Using-the-MACD-indicator-to-read-trade-signals\"><\/span><strong>Using the MACD indicator to read trade signals<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The MACD shows an <a href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/?utm_source=blog&amp;utm_medium=article\">uptrend or downtrend<\/a> in the market and helps you know when to buy or sell. Here\u2019s how you can use the MACD crossover with other lines to read trade signals:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Using-the-MACD-line-and-0-line\"><\/span><strong>Using the MACD line and 0-line<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The MACD and zero lines, when used together, show the market trend. Here\u2019s how:<\/p>\n\n\n\n<ul><li>When the MACD line crosses above the zero line, it signals an uptrend<\/li><li>When the MACD line crosses below the zero line, it signals a downtrend<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Using-the-MACD-line-and-the-signal-line\"><\/span><strong>Using the MACD line and the signal line<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The MACD line, together with the signal line can pinpoint when to buy and when to sell. Here\u2019s how:<\/p>\n\n\n\n<ul><li>When the MACD line crosses above the signal line, it is a good time to buy<\/li><li>When the MACD line crosses below the signal line, it is a good time to sell<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"concepts\"><span class=\"ez-toc-section\" id=\"The-concepts-of-convergence-and-divergence\"><\/span><strong>The concepts of convergence and divergence&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>While the MACD crossover is an important indicator, you also need to understand the concepts of convergence and divergence, two important aspects of the MACD.<\/p>\n\n\n\n<p>The aspects of convergence and divergence are studied in histograms that measure the difference between the MACD line and the signal line. Each histogram shows the difference between the changing MACD and signal lines. Thus, if the histograms converge, the difference is small. It indicates a trend reversal, i.e. a change in the existing trend in the market. On the other hand, if the histograms diverge, i.e. move apart, it means that the difference between the MACD and signal lines is increasing. This signals the continuity of the existing trend in the market.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"trading\"><span class=\"ez-toc-section\" id=\"MACD-trading-strategies\"><\/span><strong>MACD trading strategies<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Based on the reading of the MACD crossovers and the convergence and divergence of the histogram, three distinct MACD strategies emerge.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-crossover-strategy\"><\/span><strong>The crossover strategy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Under this strategy, the MACD and signal lines are considered and then trading strategies are made based on how the MACD line crosses the signal line. If the MACD line crosses from above, it indicates an opportunity to buy the stock. Conversely, if the MACD line crosses the signal line from below, it indicates an opportunity to sell as the market is seen to be bearish.&nbsp;<\/p>\n\n\n\n<p>The crossover strategy is considered a lagging strategy because it is based on past price movements. By the time the strategy gives an indication, the price might be poised for a reversal. As such, the strategy can often produce a \u2018false signal\u2019.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-histogram-reversal-strategy\"><\/span><strong>The histogram reversal strategy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This strategy is quite popular as it usually gives the right indications and helps traders make the right investment choices. Under this strategy, the histograms are studied. If they increase in height, it shows that the market is moving quite strongly. On the other hand, if the histogram shrinks, it signals the slowing down of the market movement.<\/p>\n\n\n\n<p>This strategy is called a leading strategy because known trends are used as the basis of placing positions. As such, the histogram reversal happens before the movement of the market and helps traders take their positions beforehand.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-zero-cross-strategy\"><\/span><strong>The zero-cross strategy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Under this strategy, the MACD and the zero lines are used together to analyse the price movements. If the MACD line crosses the zero line from above, it indicates the start of a <a href=\"https:\/\/www.tickertape.in\/blog\/bull-market\/?utm_source=blog&amp;utm_medium=article\">bullish market<\/a>. You should buy or close your short position in such a scenario. On the contrary, the MACD line crossing the zero line from below heralds a bearish market. You should sell or close your long position in this scenario.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>MACD indicator is an important tool in technical analysis. You can use the MACD indicator when you trade in shares. The indicator can signal an uptrend or downtrend in the market and the <a href=\"https:\/\/www.tickertape.in\/blog\/day-trading-strategies\/?utm_source=blog&amp;utm_medium=article\">different trading strategies<\/a> can help you time your entry and exit from the market. So, understand the concept of MACD before you start trading in stocks.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Wondering what is MACD? Click here to know about Moving Average Convergence Divergence &#038; learn how to interpret MACD indicators on a trading chart!<\/p>\n","protected":false},"author":54,"featured_media":5129,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[9,1742],"tags":[927,928,926,929],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/2-1.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5365"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=5365"}],"version-history":[{"count":2,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5365\/revisions"}],"predecessor-version":[{"id":5419,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5365\/revisions\/5419"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/5129"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=5365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=5365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=5365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}