Using the MACD Indicator to Determine Market Trend
MACD is an extremely popular technical indicator. The name stands for “Moving Average Convergence Divergence.” The MACD is so named because it uses moving averages (two of them) to render a visual picture of times when those moving averages are either converging on each other or diverging from each other. The changing posture of these two moving averages relative to each other, either converging or diverging, gives the market technician information that can be used in rending judgments about where the security might be heading in the near future.
A market technician is someone who analyzes the historical price chart of a security and makes judgments based upon that chart. Market technicians use the MACD indicator to determine three things about the price chart:
- The general trend of the security, up or down
- The momentum of the trend, strong or weak
- The opportune times to buy or sell shares (or contracts) of the security
The MACD indicator is composed of three parts:
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