

The moving average convergence divergence, commonly called the MACD or "Mac D," is a technical indicator developed by Gerald Appel in 1979. Shown in Figure 1, the MACD is a popular and versatile tool used to recognize and follow strong trends, and to spot trend reversals.
Figure 1: A MACD applied to a fourhour chart of the GBP/USD currency pair. 
The MACD is based on the difference between two moving averages (MAs): a faster one (to reflect shorterterm market trends) minus a slower one (to reflect longerterm trends). Typically, a 12period exponential moving average (the faster MA) is paired with a 26period exponential moving average (the slower MA); both moving averages use closing prices for calculations. Other MA lengths can be used, such as a 19period exponential moving average (EMA) paired with a 39period EMA, or an 8period EMA paired with a 17period EMA. The examples in this tutorial will reflect the 1226 period MACD, as it is one of the most widely used. The 1226 period MACD is calculated as:
MACD = 12period EMA minus 26period EMA 
In 1986, Thomas Aspray added a histogram (a series of vertical lines, shown in Figure 1 in dark blue) to the MACD indicator. The histogram is positive (above the zero line) when the MACD (12period EMA minus the 26period EMA) is above its 9period EMA; it is negative (below the zero line) when the MACD is below its 9period EMA. The histogram grows larger as the speed of price movement accelerates. Conversely, as price movement slows down, the histogram contracts. The histogram actually represents the difference (or divergence) between the MACD and the signal line (the bright pink curving line in Figure 1):
Histogram = MACD minus Signal 
The signal line is a 9period EMA of the MACD itself that is plotted on top of the MACD:
Signal = 9period EMA of MACD 
Some traders use this "signal line" as a trigger for buy and sell signals: for example, a buy signal may exist when the MACD moves above its own 9period EMA, and a sell signal might occur when the MACD moves below its 9period EMA, as shown in Figure 2. Because the MACD is such a versatile tool with a variety of possible uses, traders may wish to research the many other possible interpretations.
Figure 2: One interpretation of the MACD: sell as the histogram drops below the signal line, and buy when the histogram rises above the signal line. 
The name of an indicator appears at the top of the price chart to which the indicator is attached. When the MACD indicator is applied to a price chart, "MACD" appears at the top and its EMA lengths appear in parentheses next to its name. Each EMA length is separated by a comma, as shown in Figure 3. For example, the 1226 MACD with a 9period EMA signal line will appear as MACD (12, 26, 9).
Figure 3: The name of an indicator appears at the top of the chart to which the indicator is attached. Here, MACD is shown with its settings in parentheses (12, 26, 9). 
Applying The MACD Indicator With MetaTrader 4: Using The MACD
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