What is MACD and how does it work?

What is MACD? The MACD is a trend-following momentum oscillator applied to the price of a particular security using two moving averages to attempt to indicate the formation of a new trend. On a chart, the MACD is visualized as two lines, oscillating without boundaries.

Why is the MACD so popular?

The MACD's popularity is largely due to its ability to help quickly spot increasing short-term momentum. However, before we jump into the inner workings of the MACD, it is important to completely understand the relationship between a short-term and long-term moving average .

How do you calculate MACD?

An approximated MACD can be calculated by subtracting the value of a 26 period Exponential Moving Average (EMA) from a 12 period EMA. The shorter EMA is constantly converging toward, and diverging away from, the longer EMA. This causes MACD to oscillate around the zero level. A signal line is created with a 9 period EMA of the MACD line.

Is MACD a good indicator?

MACD is a technical indicator that can generate buy-and-sell signals. It can be most useful in trending markets. The rally for stocks since mid-June has pushed MACD into an overbought reading. Inflation has shown some signs it has started to cool a bit, and that has helped stocks continue the recent rally which began in mid-June.