What do the bracketed numbers following a technical indicator mean?

By Casey Murphy AAA
A:

In technical analysis, it is common to see a series of numbers following a given technical indicator, usually in brackets. These numbers are the parameters used by the trader when establishing the sensitivity of the indicator to changes in the price of the underlying asset. These parameters are seen on nearly all technical indicators, but for simplicity's sake we will just focus on the moving average convergence divergence (MACD) indicator.

The MACD is created by taking the difference between a short-term exponential moving average (EMA) and a long-term EMA. The two periods used for the moving averages are illustrated by the first two numbers within the brackets. In general, the two default periods for the two moving averages are 12 days for the short-term average and 26 days for the long-term average. The trader is able to reduce the indicator's sensitivity to changing prices by increasing the number of periods of the averages used in the calculation. Conversely, the trader can make the indicator more responsive by decreasing the number of periods of the EMAs. Therefore, MACD (15,35,9) would mean that the MACD is equal to the difference between a 15-day EMA and a 35-day EMA. These settings would make the indicator slightly less responsive to changes in the price of the underlying than the common MACD (12,26,9).

Now that we understand what the first two numbers mean, let's discuss the third number, which, in most cases, represents the parameter used to create the signal line (assuming the use of a signal line is appropriate for the given indicator). In the previous example, this number represents a nine-period EMA of the MACD indicator, which is nearly always plotted alongside the MACD values on a chart to give a trader an idea of when to enter a trade. (For more on the MACD indicator, see our article Moving Average Convergence Divergence - Part 1.)

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