MACD is calculated in three steps:
1. Calculate the point spread difference between two Exponential Moving Averages of the closing price: a slower, 26-day EMA is subtracted from a faster 12-day EMA. Plot this differential oscillator, which measures price velocity.
2. Smooth this price velocity with an even faster 9-day EMA. Plot this signal line.
3. Calculate a second differential oscillator by subtracting the signal line from the price velocity. Plot this measure of price acceleration as a histogram.
Using the MACD requires experience and judgement. Different lengths for the EMAs are used depending on the behavior of the security and trading objectives, shorter or longer term. The following is one example of how to use the MACD.
Enter long position when the MACD (the 12-period EMA minus the 26-period EMA) crosses above its own Signal Line (the 9-period EMA of the difference between the 12-period EMA minus the 26-period EMA).
Close long position when the MACD (the 12-period EMA minus the 26-period EMA) crosses below its own Signal Line (the 9-period EMA of the difference between the 12-period EMA minus the 26-period EMA).
The chart above is the SPY daily stock chart showing the MACD indicator. The green arrows would be buy signals and the red arrows would be sell signals.
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No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.
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