Moving-Average Convergence/Divergence (MACD) Indicator
MACD indicator developed by Gerald Appel, combines signals from three-time series of MA curves to reveal changes in the direction and strength of the trend. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge.
The three major components are MACD line, a signal line, and MACD Histogram.
The MACD line is a result of taking a longer-term EMA and subtracting it from a shorter term EMA. The values that are most commonly used are, 26 days for the longer term EMA and 12 days for the shorter term EMA.
The EMA of the MACD line is called the Signal line. Traders can decide on what period length EMA to use for the signal line.
The MACD Histogram takes the differences of MACD line and the Signal line and places it into a readable histogram. The differences oscillate around a zero line.
MACD line = 12-period EMA – 26-period EMA
Signal line = 9-period EMA
Histogram = MACD line – Signal line