MACD
Moving average convergence/divergence is an indicator used in technical analysis of instrument prices. It was created by Gerald Appel in late 1970. The MACD indicator is a momentum oscillator widely used to trade in the direction of trends. It is established to reveal changes in the strength, direction, momentum, and duration of a trend in an instrument price.
The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. A nine-day EMA of the MACD called the "signal line," is then plotted on top of the MACD line, which can be used as a trigger for buy and sell entry.
MACD histogram crossing above zero levels is considered bullish while crossing below zero levels is bearish. Secondly, when MACD turns up from below zero it is considered bullish in the instrument. When it turns down from above zero it is considered bearish.
When the MACD line crosses from below to above the signal line, the indicator is considered bullish. The further below the zero lines the stronger the signal.
When the MACD line crosses from above to below the signal line, the indicator is considered bearish. The further above the zero lines the stronger the signal.
During trading ranges, the MACD will not work. Traders generally avoid trading in this situation with the help of MACD.
The divergence between the MACD and the price action is a stronger signal when it confirms the crossover signals.
Divergence: A "positive divergence" or "bullish divergence" occurs when the price makes a new low but the MACD does not confirm with a new low of its own. A "negative divergence" or "bearish divergence" occurs when the price makes a new high but the MACD does not confirm with a new high of its own. A divergence with respect to price may occur on the MACD line and/or the MACD Histogram
Convergence: The MACD histogram is shrinking in height. This occurs because there is a change in direction or a slowdown in the stock, future, bond, or currency trend. When that occurs, the MACD line is getting closer to the MACD signal line.