MACD stands for Moving Average Convergence Divergence. It tracks two different moving averages of a stock, one short term and one longer term. If the stock is rising, the short term moving average will be higher than the long term one. As the stock levels off, the long term starts to match the short term. If the stock begins to fall, the short term average crosses over the long term and is lower. Each of these points provide insight into which direction the stock is moving.
It should be noted, however, that the MACD, as well as any other technical indicator, is not 100% correct. In fact, often they are perhaps 90% correct when executed with perfect precision; however, the loss from that 10% is usually significantly larger than any of the gains achieved from the other 90%. This is partly why traders lose money, as a rule.
The richest people in the world are not traders. They are investors.
To add to what has already been answered, the standard and commonly used period setting for MACD is 12,26,9. What it means is that MACD is derived by deducting 26 period EMA (exponential moving average) from the shorter-term 12 period EMA. Joining all the subsequent points of MACD we get the main MACD line.Then a 9 period EMA of the MACD itself is calculated. When all the subsequent points are joined, we get another line which is MACD signal line. MACD line's crossover with the signal line are considered as buying and selling signal. You may check further details at http://www.forexabode.com/technical-anal... As mentioned in the previous answer, please note that not all the signals are true. There would be many false signals, especially when the price action is lacking any clear trend. Considering this it is always advisable to depend on MACD during the trends. Please check the chart under the heading "Rationale behind using old period settings" on the above mentioned link. You will see that 4 signals proved to be false against the 4 signals which were true, in the given example. Point to be noted here is that the trues signals led to much bigger moves than the false signal. Considering this the profits by true signals were considerably higher than the loss which might have been faced due to false signals. You may also check the attached Forex chart of EUR/USD. The red line in this chart is the signal line and the blue on is the main MACD line.
I am learning about shares and investing. Can someone please help me understand what the MACD is and how to interpret it. When does it show something good etc.
