Moving Average Convergence/Divergence (MACD)
Moving Average Convergence/Divergence (MACD) is the next trend-following dynamic indicator. It indicates the correlation between two price moving averages.
The Moving Average Convergence/Divergence (MACD) Technical Indicator is the difference between a 26-period and 12-period Exponential Moving Average (EMA). In order to clearly show buy/sell opportunities, a so-called signal line (9-period indicators` moving average) is plotted on the MACD chart.
The MACD proves most effective in wide-swinging trading
markets. There are three popular ways to use the Moving Average
Convergence/Divergence: crossovers, overbought/oversold conditions, and
divergences.
Crossovers
The basic MACD trading rule is to sell when the MACD
falls below its signal line. Similarly, a buy signal occurs when the
Moving Average Convergence/Divergence rises above its signal line. It
is also popular to buy/sell when the MACD goes above/below zero.
Overbought/oversold conditions
The MACD is also useful as an overbought/oversold
indicator. When the shorter moving average pulls away dramatically from
the longer moving average (i.e., the MACD rises), it is likely that the
security price is overextending and will soon return to more realistic
levels.
Divergence
An indication that an end to the current trend may
be near occurs when the MACD diverges from the security. A bullish
divergence occurs when the Moving Average Convergence/Divergence
indicator is making new highs while prices fail to reach new highs. A
bearish divergence occurs when the MACD is making new lows while prices
fail to reach new lows. Both of these divergences are most significant
when they occur at relatively overbought/oversold levels.
Calculation of MACD
The MACD is calculated by subtracting the value of a 26-period exponential moving average from a 12-period exponential moving average. A 9-period dotted simple moving average of the MACD (the signal line) is then plotted on top of the MACD.
MACD = EMA(CLOSE, 12)-EMA(CLOSE, 26)
SIGNAL = SMA(MACD, 9)
Where:
EMA — the Exponential Moving Average;
SMA — the Simple Moving Average;
SIGNAL — the signal line of the indicator.
Moving Average of Oscillator
Moving
Average of Oscillator is the difference between the oscillator and
oscillator smoothing. In this case, Moving Average
Convergence/Divergence base-line is used as the oscillator, and the signal line is used as the smoothing.
OSMA = MACD-SIGNAL
Source Code
Full MQL4 source of Momentum is available in the Code Base: Momentum
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Technical Indicators
