How to trade using MACD indicator?

Investing with moomoo joined discussion · Jul 28, 2021 10:53

1. Introduction

MACD, short for moving average convergence divergence, is a technical indicator that presents the relationship between two moving averages of a security’s price. It is designed to reveal potential changes in a stock's price trend.

MACD is calculated by evaluating the convergence and divergence situations between the long-term exponential moving average and the short-term EMA. An EMA is a type of moving average (MA) that gives more weight to the most recent data points.

2. Calculation Formula

MACD = 12-Period EMA – 26-Period EMA

3. Indicator's Application

MACD is calculated by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). A nine-day EMA called the "signal line," is then plotted on the graph together with the MACD line. The signal line serves as a trigger for buy and sell signals.

When the MACD rises or falls drastically in a short period of time (the shorter-term moving average deviates from the longer-term moving average), it is a signal that the security is overbought or oversold and is likely to return to normal levels.
Traders will often utilize this indicator with the relative strength index (RSI) or other technical indicators to verify their judgments on overbought or oversold scenarios.

（1）When MACD and Signal are both greater than 0 and move upwards, it is generally a positive signal indicating that the market is bullish.

（2）When MACD and Signal are both less than 0 and move down, it is generally a negative signal indicating that the market is bearish.

（3）When MACD and Signal are both greater than 0 but move downward, it is generally a negative signal indicating that the market trend is turning downward.

（4）When MACD and Signal are both less than 0 but move up, it is generally a positive signal indicating that the market trend is turning upward.