🤓 What is the MACD Indicator or Moving Average Convergence Divergence? 📊
The MACD (Moving Average Convergence Divergence) is an indicator used in stock trading that allows you to observe changes in the momentum of a stock's price. It is used as an analysis tool in trading to identify investment opportunities.
Momentum is the speed at which price changes occur in a stock or any other tradable instrument. It is a technical indicator that measures the strength of price movement and helps investors determine the strength of the trend.
The MACD, for its part, measures the distance (the convergence or divergence) over time between two moving averages of an asset's price. For its calculation, an exponential moving average with a short calculation period (normally 12 periods) and another exponential moving average with a medium time period (26 periods) are used.
The MACD is obtained by subtracting the value of the 12-period moving average from the value of the 26-period moving average:
MACD = EMA (12) – EMA (26)
After obtaining the MACD, its exponential moving average is calculated (usually a 9-period average is used for this). This moving average is called the signal, and it detects changes in the momentum of a price and activates buy and sell signals.
Both the MACD line and the signal line are represented in a histogram, which graphically shows the distance between the two lines.
What is the utility of the MACD in Trading?
The MACD indicator is used in trading to choose the most appropriate moment to open or close a position, that is, to buy or sell a certain financial asset.
Its use is quite widespread among traders because it provides information on both the strength of a trend (bullish or bearish) and the turning point of it.
