How to use MACD
The Moving Average Convergence Divergence (MACD) indicator is a momentum and Trend indicator. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD called the “Signal line,” is then plotted on top of the MACD line, which can function as a trigger for buy and Sell Signals
How to Trade on MACD?
In the above picture, it is a 15min technical chart of BEL. We have selected MACD from indicators, we can use MACD for your entry into the stocks. Either we can buy or sell the security using crossovers between the Signal line and the MACD line. Here Signal line is the EMA of MACD which smooth the MACD line that’s why the Signal line is the slow EMA while MACD is the fast EMA. Here Blue line is the MACD line and the Greenline is the Signal line. The black line is the zero line which acts as a reference. The red histogram is the volume indicator that means when the histogram is above the reference line it indicates green volume and vice versa.
When the MACD cuts the Signal line from below to above we get a buy signal.
When MACD cuts the reference line from below to above we get a buy signal.
When the MACD cuts the Signal line from above to below we get a sell signal.
When MACD cuts the reference line from above to below we get a sell signal
When the stock is showing a downtrend but MACD is showing an uptrend then we can expect the stock to move in the favor of MACD i.e., the stock will start moving in the direction of the MACD. This is known as Bullish Divergence. When we see this pattern on the stock, we should buy the stock.
When the stock is showing an uptrend but MACD is showing a downtrend then we can expect the stock to move in the favor of MACD i.e., the stock will start moving in the direction of the MACD. This is known as Bearish Divergence. When we see this pattern on the stock, we should sell the stock.
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