Moving Average Convergence Divergence (MACD) Indicator

MACD is an acronym for Moving Average Convergence Divergence. This technical indicator is a tool that’s used to identify moving averages that indicate a new trend, whether it’s bullish or bearish. After all, a top priority in trading is being able to find a trend, because that is where the most money is made. There is a common misconception when it comes to the lines of the MACD. The two lines that are drawn are NOT moving averages of the price. Instead, they are the moving averages of the DIFFERENCE between two moving averages. Because there are two moving averages with different “speeds”, the faster one will be quicker to react to price movement than the slower one. When a new trend occurs, the fast line will react first and eventually cross the slower line. When this “crossover” occurs, and the fast line starts to “diverge” or move away from the slower line, it often indicates that a new trend has formed.