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The technical analysis indicator known as Moving Average Convergence Divergence (MACD) is used in finance to evaluate the price trend of an asset over time. A signal line, a histogram, and two moving averages of the asset's price are also plotted on the chart along with the indicator's foundation.
The closing price of an asset's 26-day exponential moving average (EMA) is subtracted from the 12-day EMA to produce the MACD indicator. Then, a signal line—typically a 9-day EMA—is drawn on top of the MACD line. To spot shifts in the price trend of an asset, use the MACD line and the signal line.
A bullish signal is produced when the MACD line crosses above the signal line and suggests that the price of the asset will probably climb further. A negative signal is produced when the MACD line crosses below the signal line and suggests that the price of the asset will probably continue to decline.
Changes in the trend are verified using the MACD histogram, which is presented below the MACD line and displays the difference between the MACD line and the signal line. A bullish signal is observed when the histogram crosses above the zero line, while a bearish signal is visible when it crosses below the zero line.
The MACD indicator is used by researchers and traders to spot trends and potential trading opportunities. It can produce buy and sell indications, as well as confirm signals from other technical indicators. When examining the price movement of an asset over a medium-term time horizon, which usually spans several days to several weeks, the MACD indicator is extremely helpful.
It's crucial to be aware of the limits of the MACD indicator even if it can be a useful tool for technical analysis. The MACD is based on previous data, like all technical indicators, and might not always be able to anticipate future price movements. Making informed trading decisions requires combining the MACD with other technical indicators, fundamental analysis, and other factors.
