MACD stands for Moving Average Convergence Divergence. This technical indicator was created by Gerald Appel in the 1970s for stock trading. The indicator is commonly used to spot when a coin breaks the zone of resistance as well as the trends and momentum. It is a lagging indicator, because it is based on the moving averages. If a coin spikes, the indicator might not immediately provide the signal.
When MACD is positive – that means that the coin is going up in price. The higher the value – the faster it is going up. The more negative MACD value is – the faster it is going down in price.
MACD graph has three components:
- MACD Line (indicates currents price movement direction and strength)
- Signal Line (soothes out the MACD line)
- MACD Histogram (difference between MACD and Signal). This is the most important value in the final MACD calculation
MACD function has three parameters (X,Y,Z). Most common is MACD(12,26,9):
- X is the number of ticks in the short period EMA (usually 12)
- Y is the number of ticks in the long period EMA (usually 26)
- Z is the number of ticks of the MACD EMA line (usually 9). More on that in just a second
MACD Histogram is the final product of the calculation and we can find it in five steps:
- Calculate short period EMA(X)
- Calculate long period EMA(Y)
- Calculate MACD Line by finding the difference between EMA(X) and EMA(Y).
- Find the Signal line by calculating the EMA of the MACD Line
- MACD Histogram is then acquired by subtracting Signal Line value (Step 4) from the MACD Line (Step 3)
MACD Histogram value is not comparable from one coin to another coin since it’s always relative to the price. Here at ccowl.com we solve this problem by dividing MACD Histogram by the EMA(Y). This allows us to accurately compare the MACD values between various coins.
YouTube – How To Use MACD by Trading 212
StockCharts.com - Deeper dive into MACD