Moving Average convergence Divergence

 Moving Average convergence Divergence

The moving average convergence divergence (MACD) is popular indicator all stock market.it is widely used.it is relatively reliable than others.it is useful to enter & exit in stock market.

It is created by Gerald Appel in the late 1970s.The  MACD  indicator is a collection of three time series  calculated from historical data. which are Signal, Average and the divergence data. which is the differences between two like all technical indicators, the setting of the MACD can  be  changed to different time periods but traders tend to prefers  the  defaults. The defaults are 12 and 26-periods for the EMAs with the signal line as a 9-periods EMA of the  MACD line.

Important keynotes about MACD indicator

*Way to understand MACD  indicator.

*Whether market is overbought or oversold.

*Whether the market up-trending or down trading.

A signal line crossover happens when the MACD line crosses below or above the signal line on the MACD histogram. It can either be a bearish divergence or a bullish signal.

Standards parameters for the MACD are 12,26 and 9.That means  an EMA  for a 12-day time series  is calculated  as is an EMA for a 26 day time series. To derive the second line called  the signal line. You smooth the MACD  line by a nine-periods EMA. see the chart of Nepal Stock Exchange(NEPSE).

Signal line cross over: The signal line cross is a 9-day EMA of the MACD line. As a moving average of the indicators. It trails  the MACD  and  makes it easier  to spot MACD turns. A  bullish crossover  occurs when  the  MACD  turns up and crosses above the signal line. A bearish crossover occurs when the MACD turns down and crosses below the signal line.

Zero crossover: crossover are thought to signal momentum change in the market. When the main indicator crosses a predefined signal line the  trader will interpret this as a warning sign that something is changing with respect to either momentum of the price action or its direction.

Timing: The periods used to calculate the MACD can  be easily customized to any strategy, but traders will commonly rely on the default setting of 12 and 26 day periods.

False signals: Removing noise from a chart helps traders better identify true elements of a trend one way traders do this is by averaging candlesticks on a chart. Using only the averages eliminates the intraday fluctuations and shorts-lived trend changes, creating a clear image of the over all trend.