The MACD (Moving Average Convergence Divergence) indicator is one of the most popular technical indicators used in financial market analysis, especially in day trading. It is used to determine the trend direction, momentum, and potential entry and exit points. It consists of 3 main components:
1. MACD Line: The difference between the 12-period and 26-period Exponential Moving Averages (EMA).
2. Signal Line: The Exponential Moving Average (EMA) of the MACD line itself, usually over 9 periods.
3. Histogram: Represents the difference between the MACD line and the Signal line. When the MACD is above the Signal line, the histogram is positive and vice versa.
Trading Signals:
Buy: When the MACD line crosses the Signal line from below to above.
Sell: When the MACD line crosses the Signal line from above to below.
Divergence: When the price direction contradicts the MACD direction, it may indicate a potential reversal in trend.
