The MACD Technical Analysis Indicator
The MACD technical analysis indicator "M-A-C-D" was developed by Gerald Appel in the late 1970's and is also also called the "MAC-D".
What is the MACD Technical Analysis Indicator
MACD stands for Moving Average Convergence Divergence and is made by combining three exponential moving averages.
The MACD on the daily chart takes the 12 day exponential moving average of closing price and subtracts it from the 26 day exponential moving average, which forms the MACD line.
Then the MACD takes a 9 day exponential moving average of the MACD line, which forms the signal line.
How to Trade the MACD Signals
A buy signal is given when the signal line crosses above the MACD line.
A sell signal is given when the signal line crosses below the MACD line.
Consider only take buy signals when the MACD lines are below the zero line and only taking sell signals when the MACD lines are above the zero line reading.
The above example shows the how the MACD daily indicator is calculated with the classic MACD numbers of 12, 26, and 9.You can use the MACD on any time frame and substitute any numbers you want to use for the indicator.
MACD Momentum Divergence
Mometum divergences are another thing to look for on the MACD oscillator, to let you know when a top or bottom may be forming on the chart.
A bullish momentum divergence is when the price make a new low, when the MACD oscillator is making a higher momentum reading.
A bearish momentum divergence is when the price is making a new high, when the MACD oscillator is making a lower momentum reading.
Market turning points are almost always preceded by a divergence on the MACD oscillator.
You could wait for divergence to be made before taking any buy or sell signals that are given by the MACD signal line cross over of the MACD line.
Waiting for divergence to happen would filter out some bad trades, but also could keep you from getting in a good trade were no divergence happened.
Using TrendlinesUsing trendlines can be very helpful when trading the MACD oscillator. You can use trendlines on the price, trendlines on the oscillator, or trendlines on both.
Trendline breaks of price and of the MACD oscillator itself are very helpful when looking for places to buy and sell on the charts.
Combining the MACD and Different Time FramesAnother thing you could do is to use the MACD with different time frames.
You could only take daily MACD buy signals if the weekly MACD was on a buy signal.
Taking it one step further you could also wait for the monthly and weekly MACD indicator to be on buy signals before going long on the daily time frame.Shorter term trader's could use what ever combination they wanted to for day trading, for example the daily MACD, hourly MACD, and 30 minute MACD.
Just work with the different time frame combinations and see what works best for you, and also remember you don't have to use any of the MACD's with another time frame if that is what works best for you.
Here is book that will help you learn more about the MACD.