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. What are the most common momentum oscillators used in forex trading?

    Explore two frequently used momentum indicators in forex trading, the moving average convergence divergence, or MACD, and ... Read Answer >>
  2. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Understand the exponential moving average, or EMA, and the moving average convergence divergence, or MACD, and their respective ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Related Articles
  1. Trading

    Bearish MACD Crossovers With A Positive Twist

    These stocks are exhibiting bearish crossovers in their MACD readings, indicating potential short-term weakness, but also longer-term buying opportunities.
  2. Trading

    MACD Histogram Helps Determine Trend Changes

    Learn how this momentum indicator is used to determine price action on a stock.
  3. 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.
  4. Trading

    MACD Bearish Crossover in Downtrending Stocks (NWSA, URBN)

    The MACD is a popular moving average based indicator, and it is signaling the downtrend will continue in these stocks.
  5. 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.
  6. Trading

    What is an Indicator?

    Investors use indicators to measure economic conditions and forecast financial and economic trends.
  7. Trading

    4 Stocks With Bullish MACD Crossovers

    These four stocks recently created a bullish MACD crossover, signaling the potential end of the pullback and the start of the next up-trending wave.
  8. Financial Advisor

    Moving Average Convergence Divergence - MACD

    Learn about this momentum indicator that shows the relationship between two moving averages.
RELATED TERMS
  1. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  2. True Strength Index - TSI

    A technical momentum indicator that helps traders determine overbought ...
  3. Technical Indicator

    Any class of metrics whose value is derived from generic price ...
  4. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
  5. Hybrid Indicator

    A technical indicator that combines core elements of chart analysis ...
  6. Confirmation

    The use of an additional indicator or indicators to substantiate ...
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center