The Moving Average Convergence Divergence (MACD) is a technical indicator that is used to identify trend changes in the price of a security. It is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. The resulting value is then plotted on a chart as a histogram, with a positive value indicating an uptrend and a negative value indicating a downtrend.
The MACD is commonly used in conjunction with a signal line, which is a 9-day EMA of the MACD line. When the MACD line crosses above the signal line, it is considered a bullish signal, indicating that the price of the security may be about to rise. Conversely, when the MACD line crosses below the signal line, it is considered a bearish signal, indicating that the price of the security may be about to fall.
In addition to these basic signals, traders also look for other indications from the MACD, such as divergences between the MACD and the price of the security, or when the MACD line crosses the zero line. These signals can provide additional information about the strength and direction of a trend, and can help traders make more informed decisions about buying and selling securities.