✔️ Information reviewed and updated in December 2023 by Eduardo López
Trading indicators like MACD are mathematical calculations that are represented as lines on a chart. They have the ability to help investors to identify signals and trends within the market.
In recent years trading has become increasingly popular, but what is trading? If you still do not know, here we tell you. Trading is the purchase and sale of assets that are traded in the markets, which can be stocks, currencies and futures.
The objective of trading is to obtain an economic benefit when the operation is carried out correctly. For this to be achieved, many traders use functional tools that help them make the best decisions, such as indicators.
✨Definition of the MACD Indicator✨
The Moving Average Convergence / Divergence or MACD, It is an indicator used to measure the divergence and convergence of the price of an asset on the market. In addition, it allows to analyze the behavior of the price and the trend of the market.
Through the crossing of the line and the moving average we can observe the buy and sell signals. This indicator is widely used in cryptocurrency trading.
✨What is MACD for? ✨
The MACD indicator is a very good trend indicator, alleviating at least a part of the lags derived from the use of simple moving averages. It is used a lot by trading operators because it is simple and reliable, In addition, it provides information on the strength of a trend and the inflection point.
It not only informs whether a trend is bullish or bearish, but also on the strength of buy and sell signals. The indicator it is very popular because it provides a more up-to-date representation of what is happening in the market.
✨ How is it calculated? ✨
To calculate this indicator, the two lines must be taken into account: the MACD line and the signal line.
The MACD line (blue or yellow line, depending on the background color) is obtained by subtracting the exponential moving average over “y” days from the moving average over “x” days. The signal line (red line) is obtained by calculating an exponential moving average over “z” days of the MACD line.
The variables "x", "y", "z" are parameters of the MACD indicator that are usually values of 12, 26, and 9.
This indicator is represented in the form of a histogram, it is a graphic representation of the distance between two lines. It is obtained by subtracting the red line from the blue or yellow line.
✨How is the MACD interpreted? ✨
If the MACD line crosses the signal line from the bottom then it can be interpreted as a buy signal. On the other hand, if you cut it from the top, then it is interpreted as a sell signal.
✨ How is it used? ✨
The indicator has two modes of use:
A buy signal can be given when the blue or yellow line crosses the red line at the bottom. On the other hand, a sell signal is given when this same line crosses the red line at the top.
The divergences that exist between the MACD histogram and the price curve help to find valuable trend reversal points, and They make it easy to get strong buy or sell signals.
A bullish divergence can be obtained when the price curve reaches a new low, while the indicator remains above its previous low. Conversely, a bearish divergence is obtained when the curve reaches a new high, while the indicator remains below.