What are the main differences between Moving Average Convergence Divergence (MACD) and Exponential Moving Averages (EMA)?

The exponential moving average, or EMA, is simply a moving average weighted with the most recent price change data. By giving more weight to the most recent data, the EMA reacts more quickly to price changes than the regular simple moving average, or SMA. Like any moving average, the purpose of the EMA is to give a reading of average price and to indicate market direction. It is primarily used by traders and analysts as a trend-following tool. If the slope of the EMA is up, the market is interpreted as being bullish; if the slope of the EMA is down, the market is considered bearish.

The moving average convergence divergence, or MACD, although partially constructed from EMAs, usually serves an entirely different purpose as a technical analysis tool for traders and analysts. Rather than providing an average price, the MACD is designed as a momentum indicator, used to gauge the strength of price movement in a market. The MACD uses three EMAs: an EMA of 9, and then a 12 EMA and a 26 EMA, which are combined to create a histogram showing the relative convergence or divergence of the two averages. When the gap between the 12 and 26 EMAs increases, the MACD histogram increases in size, indicating increasing momentum. Thus, the MACD is concerned, not with the specific price level indicated by an EMA, but with measuring the relationship of one EMA to another EMA.

The EMA is designed to show a market's average price over a given time period and is used as a trend indicator. The MACD does not provide specific price point data but is designed instead to gauge the strength, or momentum, of the market's price movement up or down.