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MACD indicator tutorial

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Moving Average Convergence / Divergence (MACD)

This idicator is a trend-following momentum indicator that shows the relationship between two moving averages lines.

It is usually used to determine the buying/selling point in the BAND TRAND.

Indicator formula and the calculation

EMA(n)=(yEMA(n) × (n-1)+closedPrice × 2) ÷ (n+1)

EMA(m)=(yEMA(m) × (m-1)+closedPrice × 2) ÷ (m+1)

DIF=EMA(n)-EMA(m)

MACD(x)=(yMACD × (x-1)+DIF × 2) ÷ (x+1)

※yEMA = EMA indicator yesterday

※yMACD = MACD indicator yesterday

※the short term EMA used to in range of 12 days, and the long term EMA is about 26 days, DIF is used to in range of 6 days.

According to the "Mr.Market市場先生", the subtraction of two EMA lines (12 days minus 26 days), is the definition of the MACD fast line, equals to the DIF line in Taiwan.

MACD slow line (signal line or Trigger line), means the 9 days EMA of the MACD, equals to the MACD line in Taiwan

MACD histogram:

The subtraction of the MACD fast line and the slow line, and we get the histogram of the MACD.

Using time:

  • Golden cross: when the histogram growing up from negative to positive, also known as the fast line is upper than the slow line, predict that the price will bullish, buying point.

  • Death cross: when the histogram drop down from positive to negative, also known as the fast line is lower than the slow line, predict that the price will bearish, selling point.

Warning:

MACD indicator has dramatically hysteresis, it is no sense that buying and selling only based on the MACD indicator, it should be use with other indicator such as RSI, OBV ...and so on.

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