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How does the MACD indicator work?


MACD indicator is used to determine the current trend its strength and the probability of its reversal. It consists of the MACD line, a signal line, and the bar chart.

MACD lines
MACD lines

The MACD line

The MACD line shows the difference between two EMA moving averages with different periods. When the MACD line crosses the zero line it indicates that there is no difference between them at this moment.

MACD line crosses zero line
MACD line crosses zero line

The larger the difference between two moving averages the further the MACD line is from the zero line.

MACD lines distance from zero line
MACD lines distance from zero line

The signal line

The signal line is a smooth MACD line. By default, the average value of the previous nine periods is used for calculation.

Signal line calculated from 9 periods
Signal line calculated from 9 periods

The signal line act as a slow moving average which is crossed by the fast MACD.

MACD line crosses zero line
MACD line crosses zero line

MACD barchart

The bar chart displays the distance between the signal line and the MACD line. It changes its polarity relative to the zero line depending on the price movement direction. If the price goes upward the bar chart is above the baseline. If it goes downward the bar chart is below it.

Polarity of a barchart
Polarity of a barchart

MACD settings and basic interpretation

You can change the indicator settings to set the periods for MACD and signal line moving averages which are measured in the number of candles.

MACD settings
MACD settings

When the signal line intersects the MACD line in an upward direction it indicates the possibility of price enhancement. Conversely, when the signal line intersects the MACD line in a downward direction it suggests a possible price reduction. The main advantage of the MACD indicator is its efficiency and simplicity. We encourage you to read also about combining MACD with PSAR.

Basic interpretation of MACD indicator
Basic interpretation of MACD indicator

We wish you a pleasant trading experience.


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Bart Bregman

Fulltime Day trading, and help Iq option wiki in my spare time to build an awesome platform to help beginners out there. #digital nomad, traveling all over the world.

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