Moving Average Convergence Divergence Indicator

The Moving Average Convergence Divergence (MACD) is a trend following indicator and momentum indicator which shows the relationship between two moving averages of a security’s price.

Calculation:
Step1. Calculate a 12-period exponential moving average of the close price.
Step2. Calculate a 26-period exponential moving average of the close price.
Step3. Subtract the 26-period moving average from the 12 periods moving average. This is the fast MACD line.
Step4. Calculate a 9-period exponential moving average of the fast MACD line calculated above. This is the slow or signal MACD line.
Interpretation:
As shown on the following chart, when the MACD falls below the signal line, it is a bearish signal line and when the MACD rises above the signal line then the indicator gives a bullish signal.