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How to Calculate Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence (MACD) is one of the most used and useful Indicators in Technical Analysis of charts.

This indicator was created by Gerald Appel in the late 1970s

The Indicator is explained in his book, Technical Analysis Power Tools for Active Investors. published by Financial Times Prentice Hall. p. 166. ISBN0-13-147902-4.


We use this Indicator for Identifying Trend directions and also use its Momentum signals!


Today, we are going to find out how this MACD indicator is calculated.


MACD indicator consists of – MACD line, SIGNAL line and MACD histogram


MACD line is made up of 2 EMA’s (default value of EMA’s used are 12 & 26)

The SIGNAL line is made up of the MACD line smoothed with another EMA (default value of EMA used is 9)


To calculate MACD using default values –


1. Calculate a 12 period (day / week / month etc) EMA of closing prices.


2. Calculate a 26 period (day / week / month etc) EMA of closing prices.


3. Subtract the 26 period (day / week / month etc) EMA from the 12 period (day / week / month etc) EMA and plot their difference … this is your MACD line.


4. Calculate a 9 period (day / week / month etc) EMA of this MACD line which we calculated above in step 3. … this is your SIGNAL line.


5. MACD histogram is plotted as MACD line – SIGNAL line.



Conclusion

We all use Computer software / mobile apps for our chart analysis.

So, for us MACD IS CALCULATED AUTOMATICALLY.

But, if I am going to use any tool in my Chart Analysis, then I always feel more in control, if I know how it is calculated.


So, just in case, if you want to try calculating it manually,


Also, you can check out manual calculation guides for EMA and STOCHASTIC indicators.


So, How do you use Indicators in your Technical Analysis?

Which is your favorite Indicator?

Let me know in your comments below.

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