What is a MACD?
Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. MACD can be pronounced as either “Mac-Dee” or “M-A-C-D.”
How does it work?
The Moving Average Convergence/Divergence indicator is a momentum oscillator primarily used to trade trends. Although it is an oscillator, it is not typically used to identify over bought or oversold conditions. It appears on the chart as two lines which oscillate without boundaries. The crossover of the two lines give trading signals similar to a two moving average system.
Theoretically, The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the “signal line”, is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
The values of 12, 26 and 9 are the typical setting used with the MACD, however other values can be substituted depending on your trading style and goals.
How to Calculate MACD in IRIS PLUS?
Open New Chart -> Press “S” -> Select MACD -> Click on Parameter -> Enter no. of period -> Click “OK”
Key points to remember:
- As its name implies, the MACD is all about the convergence and divergence of the two moving averages.
- The MACD Line oscillates above and below the zero line, which is also known as the center line.
- A bullish center line crossover occurs when the MACD Line moves above the zero line to turn positive & Vice Versa.
- The standard setting for MACD is the difference between the 12 and 26-period EMAs
- The MACD is not particularly good for identifying overbought and oversold levels. Even though it is possible to identify levels that are historically overbought or oversold