Moving Average Convergence/Divergence (MACD)

This classic technical indicator was developed by Gerald Appel - and it is one of the simplest and most trusted studies used by traders.

MACD is the difference between a 26-day and 12-day Exponential Moving Average. A 9-day Exponential Moving Average - called the signal line - is plotted along with it.

By comparing moving averages, MACD illustrates trend following characteristics, and by tracking the difference of the moving averages as an oscillator, MACD displays momentum characteristics.

When MACD crosses the signal line, this creates a buy or sell signal.

MACD moving above or below the centerline is confirmation of bullish or bearish momentum.

Chart courtesy of Prophet Financial Systems (www.prophet.net)