MACD, short for Moving Average Convergence/Divergence, is an economic indicator utilized in technical analysis of rising stock prices, produced by Gerald macd indicator Appel in late 1970s. It is essentially designed to show changes in the tendency, direction, and time length of a trending stock price. For every upswings, there is a downswing. For every downswings, there will be a period of upswing before a reversal. The MACD can be used as a highly reliable guide to stock trading.
The MACD uses a special charting tool called the Moving Average Convergence Divergence, or MACD for short. MACD uses moving averages, which are numbers that represent the average price of the underlying security over a period of time. The MACD uses information from the previous trading session to generate the current estimate of the best times to buy or sell stocks. Using this information, traders can make accurate trading moves and maximize profits, or reduce losses, depending on the current state of the market. The MACD uses a divergence analysis technique to determine when it is appropriate to enter a trade.
Traders use the MACD to determine the best times to buy or sell stocks, when the trend is up. However, the MACD is not accurate at predicting trends in volatile markets, like the NYSE (New York Stock Exchange). In these markets, the MACD cannot determine the exact value of the moving average. To determine the closest estimates, we must apply different methods. We will discuss these different methods in another article. The purpose of this article is to introduce the concept of MACD to a novice trader.