Thursday, November 6, 2008

MACD as an Indicator

The Moving Average Convergence Divergence (MACD) indicator is a helpful tool for comparing the short-term momentum of a stock relative to its longer term momentum. Two lines are used: the MACD line and the signal line. The MACD line is the difference between two exponential moving averages, usually the 12 and 26 day. The signal line is the 9 period moving average of the MACD line.

When the MACD line crosses above the signal line, it generally signals a buy, and crossing below a sell. Many times you will see this laid over a MACD histogram that simply graphs a line chart showing the difference between the two, with bars avove zero indicating a buy "zone". This is just another of many technical indicators you can use when evaluating stocks.

Have a good one,
Roger

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