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.)

RELATED FAQS
  1. Why is divergence of the Moving Average Convergence Divergence (MACD) important for ...

    Learn the importance of the moving average convergence divergence, or MACD, and understand why traders consider it an important ... Read Answer >>
  2. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Learn the differences between the moving average convergence divergence (MACD) and the relative strength index (RSI), and ... Read Answer >>
  3. What is the Moving Average Convergence Divergence (MACD) formula and how is it calculated?

    Learn the formula for the moving average convergence divergence momentum indicator and find out how to calculate the MACD ... Read Answer >>
  4. How reliable is using the Moving Average Convergence Divergence (MACD) to create ...

    Find out why the moving average convergence divergence (MACD) oscillator is considered one of the simplest, most versatile ... Read Answer >>
  5. What are the best technical indicators to complement the Exponential Moving Average ...

    Utilize additional technical indicators to complement and improve a basic trading strategy that relies on exponential moving ... Read Answer >>
  6. What is the difference between the Ease Of Movement Indicator and the MACD?

    Read about the differences between two technical momentum oscillators, the ease of movement indicator and the moving average ... Read Answer >>
Related Articles
  1. Trading

    Measuring Stock Market Sentiment With Extreme Indicators

    Pay attention to how the exhaustion principle helps technical indicators signal trend reversals when abrupt value changes coincide with high trading volume.
  2. Trading

    MACD And Stochastic: A Double-Cross Strategy

    Two indicators are usually better than one. Find out how this pairing can enhance your trading.
  3. Trading

    Spotting Trend Reversals With MACD

    Knowing when trends are about to reverse is tricky business, but the MACD can help.
  4. Trading

    MACD Histogram Helps Determine Trend Changes

    Learn how this momentum indicator is used to determine price action on a stock.
  5. Trading

    What is an Indicator?

    Investors use indicators to measure economic conditions and forecast financial and economic trends.
  6. Investing

    The Top Technical Indicators For Commodities Investing

    Traders can use "the usual suspects" (standard indicators for trend trading) when it comes to choosing indicators for investing in commodities. Here's how.
  7. Trading

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  8. Trading

    Stocks With Bullish MACD Crossovers

    One of the most popular trading indicators is the MACD, and right now it's flashing a bullish signal in these four stocks.
  9. Trading

    Forex: Keep An Eye On Momentum

    Using the simple MACD histogram could change how forex traders analyze currency pairs for good.
RELATED TERMS
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following ...
  2. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Percentage Price Oscillator - PPO

    A technical momentum indicator showing the relationship between ...
  5. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
  6. Signal Line

    A moving average plotted alongside a technical indicator and ...
Hot Definitions
  1. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
  2. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  3. Aggregate Demand

    The total amount of goods and services demanded in the economy at a given overall price level and in a given time period.
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  6. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
Trading Center