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MACD Indicator | Technical Indicators | Trade Futures

Gerald Appel’s MACD is the difference between a fast exponential moving average (FastMA) and a slow exponential moving average (SlowMA). During rising markets, the fast moving average will rise more quickly than the slow moving average, resulting in a rising differential line or a larger value. During falling markets the FastMA line will fall more quickly than the SlowMA line.

The specified length of FastMA must be shorter than the specified length of SlowMA; if not, the oscillator will invert (that is, buy signals will become sell signals and sell signals will become buy signals).

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Conventional Analysis

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Crossover of the FastMA line over the SlowMA line is a buy signal. Crossover of the FastMA line under the SlowMA line is a sell signal.

Additional Analysis:

MACD is generally better at signaling the beginning of bullish moves than bearish moves, and should be applied accordingly. In addition to the conventional usage, careful attention should be paid to changes in MACDMA. A downturn in MACDMA while a bullish signal is in force is often an early indication that the current up move is losing strength and long positions should be closed. Similarly, an up turn in MACDMA while a bearish signal is in force may indicate that the market is finding support and is ready to rally.

Additional References:

Appel, Gerald. The Moving Average Convergence-Divergence Trading Method. Scientific Information Systems. Toronto. 1985.

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