Moving Average Convergence-Divergence (MACD)

[ProTrader]

Developed by Gerald Appel in the late seventies, the Moving Average Convergence-Divergence (MACD) indicator is one of the simplest and most effective momentum indicators available. The MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.

Note: MACD can be pronounced as either "MAC-DEE" or "M-A-C-D".

Here is an example chart with the MACD indicator in the lower panel:

[kasual]

many trader use this indicator because easy to understand and read. if the macd histogram cross the zero line that mean the price will change direction. although actually the market condition not always easy to read by macd and its make the macd indicator not work at all.

[rexway]

Yes that is correct its easy to inderstand that is why many traders chose to use it but my experience with this indicator is that sometime its act after the market signal which make it difficult atime to trust it but the best is just to try and trade with it with combination of others indicators