Construction

The MACD is an oscillator that looks at the difference between two exponential moving averages. When plotting a MACD indicator only two lines show up even though 3 exponential moving averages are used in the indicator's construction. The periods of the 3 moving averages at work by default are set to 12, 26, and 9.

• The MACD line, referred to as the fast line, is the difference between the 26 period and the 12 period exponential moving averages of closing prices. (Blue line in figure 2).
• The signal line is the 9 period exponential moving average of the MACD line. (Red line in figure 2).
• A buy or sell signal is generated when the MACD line and the signal line cross.

The histogram portion of the MACD indicator shows the difference between the fast and signal lines.

The middle panel is an example of the MACD indicator as it looks in the VT Trader software.

MACD-Line Indicator

In the bottom panel, a different way to visualize MACD is presented, another indicator called the MACD-Line indicator. The blue fast line is replaced by a histogram and the signal line remains unchanged. The analysis in both panels is the same (for the most part); they simply look different. It is easier to do some analysis like centerline crossovers with the MACD-Line indicator. However, it does not have the histogram part (the divergence) of the regular MACD indicator that shows the difference between the two lines.

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