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Moving Average Convergence/Divergence (2 lines)


The relationship of a 26-day and 12-day Exponential Moving Average are illustrated by MACD (2-lines). Furthermore, the "signal" or "trigger" line - a 9-day Exponential Moving Average - is traced on the summit to indicate the opportunities to buy or sell. See below.

MACD (2 lines)

There are three widespread ways of MACD usage. They are crossovers, overbought/oversold conditions, and divergences.

Crossovers:

To buy in case the MACD gets lower than its signal line and to sell if MACD is higher is the basic rule of MACD trading. Another one is to buy or sell in case MACD gets higher or lower than zero.

Overbought/Oversold Conditions:

Another usage of MACD is overbought or oversold indication. If the distance between shorter and longer moving averages gets very big while the MACD goes up it means that the security price is possibly dragged out and is about to come to its ordinary levels.

Divergences:

In case MACD differs much from the price of a security it can be the sign of current trend end approaching. In case MACD is reaching lower levels and the prices does not follow it, then a bearish divergence arises. Otherwise, in case MACD reaches high peaks while the prices do not follow this trend, then a bullish divergence turns up. In case these trends appear at the levels close to overbought or oversold then the divergences are supposed to be considerable.



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