MACD

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    The Moving Average Convergence/Divergence is a momentum oscillator developed by Gerald Appel.  It is the difference between a 12 period and a 26 period Exponential Moving Average plotted usually as a histogram above (difference is positive) or below (difference is negative) the zero line. A 9 period Simple Moving Average of MACD is known as the Signal Line.

    MACD follows the general rules of oscillator analysis:

    • Confirmation of the trend is in place when MACD crosses the zero line.
    • Early Buy signals (or reversal warning) are triggered when MACD crosses above the Signal Line when below the zero line.
    • Early Sell signals (or reversal warning) are triggered when MACD crosses below the Signal Line when above the zero line.
    • Overbought/Oversold signals are triggered when the 12 period EMA pulls away from the 26 period EMA.
    • MACD is unbounded and as such, there no overbought and oversold lines.
    • Divergence follows the rules for positive and negative divergence.

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