MACD is an acronym for moving average convergence and divergence.
This technical indicator is applied to trading charts and used to analyze momentum swings in financial markets. The MACD was developed in the late 1970's by Gerald Appel.
Who is Gerald Appel you may ask ?
Aside from being the inventor of the Moving Average Convergence Divergence momentum technical trend trading indicator Gerald Appel is involved in financial assets management and offers his services via the Internet at a website called Signalert Corporation. Appel is the president of this business which he founded in the early seventies and which has grown into a multi million dollar investment management service. Appel is also President and CEO of Appel Assets Management and writes about investment strategies that focus on risk management. But Gerald Appel is more than a financial guru. He also trained in social sciences and claims that his psychotherapy training allows him to better understand his clients need.
In the same year that he founded Signalert Corporation (1973), Gerald Appel (born in 1947)began publishing a newsletter called Systems and Forecasts.
The MACD or convergence and divergence momentum or trend indicator is a simple technical indicator which is part of most online trading platforms available to traders on the internet today.
The MACD uses three values to evaluate deviation from the market mean of moving average.
The first setting is a long moving average, the second is a short moving average, and the third is a trade signal indicator.
The graph itself only shows two lines and usually an histogram.
One line is drawn by subtracting the short moving average from the long moving average. The other line is the signal moving average.
The histogram is calculated by subtracting the MACD signal line from the MACD itself.
A trader looks for crosses of the signal line and the MACD line. This occurs after divergence away from the mean or a convergence on the moving averages of the MACD.
The default settings used on most trading platforms is usually 26 for the long moving average, 12 for the short moving average, and 9 for the signal line.
However the trading platform end user can change the defaults and come up with combination that work well for the trading instrument which they are analyzing.
Like other momentum or trend technical indicators the MACD convergence and divergence indicator is not without it's limits. This indicator fails miserably in channels where breakouts fail to be followed through with a strong trend.
Look up some posts on this blog to see how the MACD is used to spot trading opportunities.
