Moving Average Convergence Divergence — Trading Wiki

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Published by TradeHQ. Site creator: Anuga Weerasinghe. This page has no recorded editorial review date; the About page explains the site's editorial approach.

What Moving Average Convergence Divergence means

MACD compares exponential moving averages of past prices. Its line, signal line and histogram describe changes in those calculations; crossovers are not reliable reversal predictions by themselves.

In depth

MACD compares exponential moving averages. With common defaults, the MACD line equals the 12-period EMA minus the 26-period EMA, the signal is a 9-period EMA of MACD and the histogram is their difference. A crossover or zero-line crossing is an event in related calculations based on past prices. It need not precede a lasting move and can repeat in a trading range. Prices, interval, initialization and settings must be stated before comparing results. The Fidelity reference documents the default calculation. TradeHQ has no MACD overlay and cannot validate a MACD rule using its generated practice candles.

Key points

• MACD line = 12 EMA minus 26 EMA; Signal line = 9 EMA of MACD
• Crossovers are indicator events, rather than validated buy or sell instructions
• A zero-line crossing describes the relationship of the selected moving averages

Why it matters when you are learning

Calculate each MACD component from stated data and settings. The resulting crossings describe related averages and do not guarantee a reversal.

Worked exercise and its limits

Hypothetical 12-period EMA = $105 and 26-period EMA = $102 give MACD = $3. With a $2 signal, the histogram is $1. The values have price units; they are not percentages. Calculate separately because TradeHQ has no MACD overlay.