The MACD or the Moving Average Convergence-Divergence is an indicator developed by Gerald Appel in the late seventies. The MACD indicator is one of the most simplest but very effective as a momentum trading technical tool. The MACD uses two moving averages which are also called the trend-following indicators. This is made into a momentum oscillator by the MACD by subtracting the longer moving average from the shorter moving average. As a result, the MACD or the Moving Average Convergence-Divergence is an indicator that can determine both the trend and the momentum of the forex market. The MACD indicator moves on the areas above and below the zero line as the moving averages converge, cross, and diverge. However, even with its ability to follow the trend and to determine the momentum, the MACD is not so very useful when it comes to identifying the overbought and oversold levels.

In determining the MACD, whether the moving averages are converging, diverging, or crossing over, convergences occur when the moving averages move towards each other, while the divergences occur when the moving averages move away from each other. There is a 12-day moving average and a 26-day moving average. The shorter the moving averages are, the faster for the MACD to react to price changes and the longer the moving averages are, the less reaction it could generate.

If the MADC line moves above or below the zero line or the so-called centerline, a crossover occurs. It means that the 12-day moving average has crossed the 26-day moving average, depending on the direction of the moving average cross. If the MACD is positive, then it means that the 12-day EMA is above the 26-day EMA and the values continue to increase as the shorter moving averages diverge further from the longer moving averages, meaning the upside momentum is increasing. If the MACD is negative, then it means that the 12-day moving averages is below the 26-day moving averages and the negative values continue to increase as the shorter moving average diverges further below the longer moving averages. meaning the downside momentum is increasing.

The MACD or the Moving Average Convergene-Divergence indicator is a special one because of its feature to follow trend and at the same time to determine the momentum. Additionally, this can also be used for traders who do trading daily, weekly, or monthly. We hope that we had provided you a very significant information on this article.