Technicals Stability Returns

##### Related Technical Analysis Tutorial
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## MACD Explained along with trade signals and examples

##### What is MACD?

MACD stands for Moving Average Convergence and Divergence. MACD is calculated by subtracting fast Exponential Moving Average and a Slow Exponential Moving Average. These average moves towards and away from each other and hence the name was given as Moving Average Convergence and Divergence. Mr. Gerald Appel invented MACD in the late 1970s. MACD is so popular because it is one of the most reliable and easy to use technical indicator. Even though it is a lagging indicator, it provides a signal before moving average crossover. MACD gives signal for trend continuation and reversal therefore used both by bulls and bears. Though MACD calculation may be difficult and time consuming but most of the common charting package and stock analysis site provides it.

##### MACD Formula & Settings
###### MACD Formula
• MACD Line = Short Term EMA - Long Term EMA
• Signal Line = EMA of MACD
• Histogram = MACD - Signal Line
Any two EMA (Exponential Moving Average) can be used to calculate MACD but most common are 26 and 12 EMA. Here in TopStockResearch 12 and 26 day Exponential Moving Average is used.

###### MACD Default Settings
• Fast - 12, Slow - 26, Signal Line - 9
###### MACD Settings Day Trading
• Signal Line = EMA of MACD
• Fast 3, Slow 10, Signal Line 16
###### MACD Settings Swing Trading
• Fast 24, Slow 56, Signal Line 18
• Fast 34, Slow 144, Signal Line 9

##### Major component of MACD
1. MACD line: It's a graphical representation between the difference of fast exponential moving average and slower Exponential moving average.
2. MACD Signal line is the 9 period EMA of the MACD line.
3. Zero Line. It is a constant line with default zero line. It also acts as signal line.
4. MACD Histogram- It is plot of difference between MACD line and signal line.

##### How to use MACD

There are three different indicators in MACD that provides a signal to technical analysts. They are:
1. MACD and signal line crossover. When MACD line moves above Signal line a Buy signal is generated. Aggressive traders may jump at this point. This is easy to spot and its occurrence is also quite common but decisions based alone on this indicator may lead to losses. After this signal should be verified by other indicators. If after this indicator if MACD crosses above zero line then its reliability is considered better.
2. MACD moving above zero line. When the MACD line crosses above zero line buy signal is generated. This is equivalent a of 12 day EMA crosses above 26 EMA. Reliability of this is better than MACD and signal line crossover.
3. MACD and price divergence. When price is making higher highs and higher lows and MACD is making lower highs and lower lows, a trend reversal is generated. This is one of the rarest signal spotted of all MACD signals. MACD price divergence is one of the most reliable signals.

##### MACD and TopStockResearch

1. Exponential Moving averages used by TopStockResearch are 12, 26.
2. Colors which represents MACD are: Blue is for MACD. Red is for signal line. Green for MACD Histogram. Grey for MACD zero line.

##### MACD Bullish & Bearish Divergence
###### 1) MACD Bullish Divergence

A MACD Bullish Divergence occurs when the market movement and the MACD indicator diverge, indicating a potential upward reversal. Divergence of this kind is sometimes seen as an indication that a positive reversal may be approaching and that the current downturn may be losing steam.

• Interpretation:

The divergence between price and MACD indicates that, while the price is still making new lows, the momentum behind the downtrend is weakening.

• Confirmation:

Confirm the divergence signal using additional technical indicators or research tools like TopStockResearch, as well as take volume and overall market circumstances into account.

• Caution:

Confirm the divergence signal using additional technical indicators or research tools like TopStockResearch, as well as take volume and overall market circumstances into account.

##### MACD Bullish Divergence Strategy Screener And Example

The price creates lower lows during the downtrend, but the MACD forms higher lows.

###### 2) MACD Bearish Divergence

A MACD Bearish Divergence occurs when the price movement and the MACD indicator diverge, indicating a possible downward reversal. This kind of divergence is sometimes seen as indicating that the current uptrend is losing strength and that a negative reversal is approaching.

• Interpretation:

The divergence between price and MACD indicates that, while the price is still making new highs, the momentum behind the uptrend is weakening.

• Confirmation:

It's essential to confirm the divergence signal with other technical indicators or analysis tools and consider factors such as volume and overall market conditions.

• Caution:

Confirm the divergence signal using additional technical indicators or research tools like TopStockResearch, as well as take volume and overall market circumstances into account.

##### MACD Bearish Divergence Strategy Screener And Example

In an uptrend, the price makes higher highs, but the MACD histogram forms lower highs.

###### Advantages of MACD
a. It is a solid indicator that helps to identify stock trends.
b. It provides a signal much before moving average crossover.

###### Disadvantages of MACD
a. It being a lagging indicator gives a signal after a trend has started.
b. In volatile market it gives too many wrong signals.
c. MACD price divergence by many is considered as unreliable as it depends on derivative of derivative therefore it is much far from its base.

##### Do's & Don't while using MACD
###### Do's
• Master Indicator
• Thorough Backtesting
• Find Complementary Indicator
• Use Support & Resistance
• Check Volume
###### Don'ts
• Trade Against The Trend
• Mixing Too Many Indicators
Other tutorials which further enhance better grasp on MACD can be found at:

Our website provides free Stock screening based on MACD. It can be found at below link:
##### MACD Video Tutorial

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StockAio.com (Stock All In One) is now Live
We hope you will provide us with the same Love & Support as you did for TSR.