|Parameter Defaults:||First EMA Period||12||controls the measurement period for the short average|
|Second EMA Period||26||controls the measurement period for the long average|
|Signal EMA Period||9||controls the measurement period for the signal average|
The MACD indicator was developed by Gerald Appel and is simply a method of identifying the potential for two exponential moving averages to cross. MACD is calculated using a short length and a long length exponential moving averages (defaulted to 12 and 26) and calculating the difference between these two averages. In other words, it is the spread between the two averages. Normally s signal line is then derived by calculating an exponential moving average of the MACD. In this case, it is omitted and the MACD is displayed as a histogram – a series of vertical bars above and below a zero line.
This presentation of MACD ignores the signal line and suggests trades on the crossing of MACD through zero (as shown in blue rings). While in trending conditions this can provide good profitability, caution should be exercised in consolidating periods.
An alternative method of assessing trade signals is to take the most recent sizeable correction in MACD and extend this point to the right until MACD penetrates this level. This can provide earlier signals than waiting for a move through the zero line. Occasionally this may cause an early signal as shown in the center of the chart.