Moving Average Convergence/Divergence (MACD)

Moving Average Convergence/Divergence is an oscillator intended as an improvement on the simple moving average approach. It generates its signal from the crossing of moving average lines [20]. The MACD line is calculated by taking two exponentially moving averages of closing prices with different periods and subtracts the moving average with the longer period from the one with the shorter period. The MACD is a centred oscillator line, which fluctuates above and below zero, without any limits. Usually, 12/26 MACD is used, which computes the difference between the 26-day and the 12-day exponential moving averages. The crossing of signal line is usually used to indicate a buy or sell signal. The signal line is usually itself a 9-period exponential average of the MACD line. The trading rules for the MACD are summarised as follows.

1.IF MACD is above the signal line THEN BUY.

2.IF MACD is below the signal line THEN SELL.

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