Moving Average Convergence Divergence - MACD

The MACD (Moving Average Convergence Divergence) was developed by Gerald Appel, it is a trend following momentum indicator used to signal trend changes and to indicate trend direction.

MACD composed of two lines: the MACD line and the signal or trigger line. The MACD line is the difference between two exponential moving averages (scan results in this blog is based on 26-day and 12-day EMA). The signal line which is the exponential moving average plotted on top of the MACD to show buy or sell opportunities (scan results in this blog is based on 9-day EMA).

Interpretation
The MACD proves most effective in wide-swinging trading markets rather than choppy, sideways markets. The signal line crossing is the usual trading rule, that is to sell when the MACD falls below its signal line and on the other hand, buy when the MACD rises above its signal line (as indicates by the little yellow boxes in the chart above). It is also popular to buy or sell when MACD goes above or below zero (as indicates by the little yellow boxes in the chart above).

I have list of stocks that I scan for MACD's crossovers and I will post the results here everyday to ease your scanning and investment process. --> Here

There are three signals generated by MACD:

Corssovers
As discussed above.

Overbought or Oversold
MACD can be used to identify overbought and oversold conditions in price movement, this is done by comparing the distance between the shorter moving average with the longer moving average. When the shorter moving average pulls away dramatically from the longer moving averages, it is likely that the price is overextended and will soon return to more realistic level.

Divergences
There are two types of divergences: Bearish divergence and Bullish divergence. Bullish divergence occurs when the price is making new lows but MACD fails to reach new lows. Bearish divergence occurs when price is making new highs while MACD fails to reach new highs. Both of these divergences are most significant when they occur at relatively high or low levels.