MACD = Moving Average Convergence-Divergence
MACD is one of the most popular technical indicators. It was invented by Gerald Appel in the 1970′s. While it is widely known as MACD, its full name is Moving Average Convergence-Divergence.
What Is MACD? Two Lines.
When you look at a chart of MACD, you see two lines. Their names are MACD Line and Signal Line.
What Is MACD Line?
MACD is based on two exponential moving averages of closing price with different period lengths. MACD measures how close or far the two moving averages are and what is the tendency in their distance – whether they are getting closer (convergence) or further away from one another (divergence). The difference (distance) between the two exponential moving averages is plotted as a line, called the MACD Line.
What Is MACD Signal Line?
The second line which makes up MACD is named the Signal Line (because it is supposed to give trading signals when it crosses the MACD Line). The Signal Line is another exponential moving average – of MACD Line.
Although MACD is no guaranteed predictor of future price developent, the behaviour of MACD Line and Signal Line (and their interactions) can clarify your idea about recent and current market situation (rising, falling, accelerating, slowing down, sideways etc.) – see MACD Interpretation.