MACD is an oscillator based on exponential moving averages. This standard formula, as defined by Gerald Appel, subtracts the difference between a long term (26 Wk) and a short term (12 Wk) exponential moving average. This difference is then made into another moving average (9 Wk) before display. The moving average of the difference is known as the Signal Line. When the fast MACD line crosses above the signal line, it gives a buy signal. Conversely, when the fast line crosses below the signal line it is time to sell. As with all oscillators, look for divergence from price pattern and trend within the oscillator as well.
Daily bar chart of Alcoa with
standard MACD Double Lines.
Chart created using Personal Analyst from Trendsetter Software (trendsoft.com).
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