MACD stands for Moving Average Convergence Divergence, which is a popular technical analysis indicator used in stock and commodity markets to identify trends and potential buy and sell signals. It’s calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA, and then plotting the result as a histogram along with a nine-day EMA of the difference, which is called the “signal line”.
The MACD line (the difference between the two moving averages) can cross above or below the signal line, creating what are known as “bullish” and “bearish” crossovers. A bullish crossover occurs when the MACD line moves above the signal line, signaling that a trend reversal to the upside may be underway. A bearish crossover occurs when the MACD line moves below the signal line, signaling that a trend reversal to the downside may be underway.
The MACD is also often used in conjunction with its histogram, which is a graphical representation of the difference between the MACD and the signal line. The histogram can help traders identify potential momentum shifts and potential trend changes.
It’s important to note that the MACD is just one of many technical indicators that traders and investors use, and that it should not be relied upon solely in making investment decisions. As with all indicators, it’s best used in conjunction with other forms of analysis, such as trend analysis, price action, and fundamental analysis.
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