NOTE: This will only be about the sole basics of MACD. Divergences along with Rapid Rises/Falls will be in the next blog. Sorry about that.
MACD is an acronym that stands for Moving Average Convergence Divergence. I know, what does that all mean and do? According to Investopedia, it is a trend-following momentum that shows the relationship between two moving averages of a security’s price. We have a MACD line and a “signal line” when looking into MACD.
MACD is used when investors/buyers to understand when it’ll be a bullish/bearish movement anytime soon.
I’m gonna try to make this simple and hopefully easy to learn! (emphasis on the hopefully)
Pictured below will be examples of knowing when to recognize either a bullish or bearish confirmation will occur.
Okay to start things off. I am using ThinkorSwim right now, and I highly suggest using ToS if anyone plans on learning how to read charts in the future. Very user friendly and great tools to help you learn better. So what we’re looking at here is at SPY. Here we have a 1 Year to 1 Day chart, so as of this chart, we are looking during June 2019.
MACD is presented on the bottom graph. There are 2 indicators as what we have mentioned before.
The BLUE LINE represents the MACD Line.
The YELLOW LINE represents the Signal Line.
So as you can see on the graph, as the MACD crosses above the signal line, we get a small bullish trend as pictured above.
Okay so we’re looking at the same chart like before. Same ticker as before too. As you can tell, once the MACD crosses below the signal line, we get a small downward trend, leading to a bearish trend.
BULLISH TREND = MACD crosses above signal line
BEARISH TREND = MACD crosses below signal line
Until next time, I’ll write up about divergences and rapid rises/falls in the meantime.