{"id":750,"date":"2019-07-05T18:35:16","date_gmt":"2019-07-05T15:35:16","guid":{"rendered":"http:\/\/roboforex.com/blog\/?p=750"},"modified":"2026-05-26T10:53:20","modified_gmt":"2026-05-26T07:53:20","slug":"what-is-the-macd","status":"publish","type":"post","link":"https:\/\/roboforex.com/blog\/blog\/2019\/07\/05\/what-is-the-macd\/","title":{"rendered":"MACD Indicator: Settings, Trading, Divergence"},"content":{"rendered":"\n

<\/span>What is MACD indicator<\/a><\/span><\/h2>\n\n\n\n

The MACD <\/strong>is one of the most popular technical indicators<\/a>. It is included into most trading platforms for financial and commodity markets.<\/p>\n\n\n

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\"Gerald<\/a><\/figure><\/div>\n\n\n

The indicator was created almost 40 years ago by Gerald Appel<\/strong>. It was first used in 1979. MACD is an abbreviation of the phrase Moving Average<\/a> Convergence<\/a>\/Divergence<\/strong>.<\/p>\n\n\n\n

The indicator is used in technical analysis<\/a>. It helps determine the direction of the trend, its strength and duration; price range, reversal levels; it also gives trading signals<\/a>.<\/p>\n\n\n\n

This indicator is called a trend indicator because it is formed on the basis of two Moving Averages<\/a>. They are not visible on the chart, only their values are used in calculations. The indications of the MACD are displayed in a separate window under the chart. Practically, we have a trend oscillator. A classical MACD chart is a histogram with vertical bars and an additional smoothing line. The histogram represents the space between the Moving Averages and the dynamics of their convergence or divergence. When the space between the Averages grows, the bars of the histogram also become longer. If the space becomes smaller, the bars shorten. When they line up above the zero line and grow longer, the price is considered to grow. When the bars of the histogram gather below zero and grow shorter, the price is expected to drop.<\/p>\n\n\n\n

The MACD is a lagging indicator by its nature as it receives initial data from the quick (period 12) and slow (period 26) Exponential Moving Averages (EMA)<\/a>. The third component of the indicator is the Simple Moving Average (SMA)<\/a> with the smoothing period 9. As long as the price is primary and the Averages are secondary, all of them are lagging behind the price. The SMA determines the trend by its position in relation to the central zero line. When the SMA is above the zero line, it signals<\/a> an ascending trend; when it is below, the trend is descending. The SMA is also called a signal line and used for additional confirmation of trading signals.<\/p>\n\n\n\n

\"MACD<\/a>
MACD indicator<\/figcaption><\/figure>\n\n\n\n

MACD fans have recently improved the indicator, so that nowadays lots of versions are available on the Internet, including colored ones.<\/a><\/p>\n\n\n\n

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<\/span>MACD settings<\/span><\/h2>\n\n\n\n

Fast EMA<\/strong> is calculated as the average price during a set period (9 candlesticks by default).<\/p>\n\n\n\n

Slow EMA<\/strong> also represents an average price but during a longer period, which is reflected in its name.<\/p>\n\n\n\n

The difference between the quick and slow EMAs is shown by histograms, each of them having a separate meaning; MACD SMA<\/strong> is calculated as the average value of the histograms during a set period of time (by default, the smoothing period is 9).<\/p>\n\n\n\n

The setting \"Apply to<\/strong>:\" is used with the input data for the MACD. For example, the default value is \"Close\"; this means that the quick EMA will be calculated on the basis of the closing price of the candlesticks. If the setting is changed for \"Open\", the opening price will be used. The indicator features 7 basic parameters for calculating an average price:<\/p>\n\n\n\n

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  1. Close<\/li>\n\n\n\n
  2. Open<\/li>\n\n\n\n
  3. High<\/li>\n\n\n\n
  4. Low<\/li>\n\n\n\n
  5. Median Price, calculated as (High + Low) \/ 2<\/li>\n\n\n\n
  6. Typical Price, calculated as (High + Low + Close) \/ 3<\/li>\n\n\n\n
  7. Weighted Close, calculated as (High + Low + 2*Close) \/ 4<\/li>\n<\/ol>\n\n\n\n
    \"MACD<\/a>
    MACD settings<\/figcaption><\/figure>\n\n\n\n

    MACD results are based on quick and slow EMA settings. If the period is too short, the indicator becomes too sensitive to the price fluctuations and starts giving lots of false signals<\/a>. If the period is too long, the indicator becomes slower, which makes the signals more accurate but more scarce. The standard MACD settings are most spread ones on the market (12\/26\/9).<\/p>\n\n\n\n

    <\/span>MACD parameters on the chart<\/span><\/h3>\n\n\n\n
    \"MACD<\/a>
    MACD parameters<\/figcaption><\/figure>\n\n\n\n

    <\/span>Convergence and divergence<\/a><\/span><\/h2>\n\n\n\n

    As the name of MACD (Moving Average Convergence\/Divergence)<\/strong> states, the function of the indicator is primarily detecting convergence and divergence on charts. They are not just important elements of technical analysis but also rather strong signals of trend reversals. Convergence and divergence occur when price dynamics is not supported by increase of supply or demand, in other words, the trend weakens.<\/p>\n\n\n\n

    Divergence and convergence are derived from the Latin words \"divergere\" (deviation, discrepancy) and \"convergo\" (closing on). But what is diverging\/converging and where? In our case we are looking at the difference between the price chart and the indicator (oscillator) chart.<\/p>\n\n\n\n