Why is MACD the active trader’s must using tool?

 

What is MACD?

MACD is the abbreviation of Moving Average Convergence and Divergence (MACD),

The MACD indicator is the most popular and useful tool in technical analysis.

It is crated by Gerald Appel in the late 1970s, it gives traders the ability to quickly and easily identify the short-term trend, including bullish, bearish, change moment, direction, strength.

 

MACD Calculation formula:

 

The MACD uses two different speed (long-term and medium-term) exponential moving averages (EMA) to calculate the difference between the two EMA as the base to analyze stock market.

The most commonly used values are 12, 26, and 9 days moving average, that is, MACD(12,26,9). 

 

Where LONG=26, SHORT=12, MID=9

DIF=EMA(CLOSE,SHORT)-EMA(CLOSE,LONG)

DEA=EMA(DIF,MID)

MACD=(DIF-DEA)*2

 

How to read MACD chart?

Below is Twitter MACD chart extracted from moomoo app. The top part is twitter stock price from Aug. 2019 to April 2022, the bottom part is MACD chart.

 

DIF is marked in orange line, DEA is marked in blue line, MACD is the bar, green portion indicates buying signal, red portion indicates selling portion, the length of the bar indicates the strength of the signal, zero line is the dividing line between bullish and bearish.

 

 The buy and sell signals are determined by the intersection of the two lines.

If both DIFF, DEA are above line zero, meaning bull market, DIFF is above DEA, it could indicate buying signals.

If DIFF falls below DEA, it could indicate selling signals.

MACD column line, change from red to green (negative to positive), buying signal; change from green to red, selling signal.

MACD is above the zero limit for the long market, and vice versa for the short market.

Zero line indicates the switching point, MACD crossing above zero is considered bullish, while crossing below zero is bearish.