Info 1: MACD definition
Info 2: how MACD works
Info 3: MACD vs EMA
Info 4: example of MACD
Opening information
Moving average convergence divergence (MACD) had four matter moving, average, convergence, and divergence.
Moving means Active from one place to another, average means normal and standard, convergence means Joining more than one matter together, and divergence means separated.
Moving average convergence divergence (MACD) means separated joint normal processors.
So now let’s have a look at what is MACD, how MACD works, and what is difference between types of MACD and EMA, finally one clear example of the MACD.
Info 1: MACD definition
Mr.John was a 55-year-old businessman living in Alaska. He also had a total of 7 companies. His total net worth is 25 million dollars. Also, he is a short-time trader.
However his total net worth of 25 million dollars accumulated from 5 million dollars earned through trading. Even now, John wanted to make money by buying shares in the public market and trading them as usual through short-time trading.
So he chose three companies that were performing very well in the stock market namely, Zirconico, Pemino, and Cabane public company.
He wanted to carry out analysis using technical tools that calculate the turning Trigger point of any securities using the two EMA 12 period and 12 period.
Here John used exponential moving averages, it subtracted the 26-day and 12-day averages to get a stable value. So he bought shares in Pemino Public Company itself.
Because any of the technical tools that take place calculation over bought and over sold position using the 26 EMA and 12 days EMA which is called as MACD indicator. So let’s dive into how this MACD works and is involved in the public market.
Info 2: how MACD works
MACD doesn’t represent any of the specific things or objects instead it’s a technical indicator which are used to predict the market movement for the future time.
However, this MACD had occupied three different components to produce the signal and arrived at its final value. Those components are the exponential moving average, another exponential moving average, and a histogram.
Here MACD had two exponential moving averages (EMA) to arrive at the calculation of the final value, but these two EMA are the same indicator
With same functions but tracks a different amount of days as EMA, which means one EMA is used to track for a long trend period and another is short term.
The histogram is the one that tracks each unit of data price movement at each rectangular
Shapes at interval closed points over time. Using these three components of each value and sum on the final value to show the signal for the trader.
This MACD indicator’s final value Would be arrived at by subtracting the long-term period EMA from the short-term period EMA. It demonstrates the clear sign of final value.
This means when the long-term period EMA crosses the short-term EMA line together with the zero center line which is illustrated as the up and down single.
If it’s crossed up or down it’s demonstrated the market is going to diverge or going to move in the same direction highly, but it’s determined that market securities price going to turn up or down.
Most investing blogs and websites misuse this information wrongly for buy and sell single, this indicator never shows when to buy or sell indeed a sign of the market going to diverge in any direction of up and down.
It could diverge and move on down side or it could also diverge and move in the same trading direction for a long period but the matter is does it going to diverge or not.
Obviously, this center zero line elaborates the Histogram tracking graph which notes at each moved to another moved point.
Therefore whenever these three components of two EMA and histogram work together to find a signal as a technical indicator it shows it’s a MACD. Most people’s Confused about MACD and EMA, so take a jump into knowing the key differences between them.
Info 3: MACD VS EMA
MACD is a tool that uses different kinds of components to arrive at the accurate value of sign of divergence.
On the other side, EMA is a technical tool like MACD but not a MACD, it’s used separately and partly in lots of the technical tools as an indicator to determine the compound average value of price movement in any securities. To make this more clear on MACD, take a brief example below.
Info 4: example of MACD.
Say your brother is a technical analysis trader, which trade the stock using a different kind of technical indicator.
One Tool A refers to the option of computation of two moving averages with a histogram.
Tool B refers to the option computation of the one moving average by adding an exponential value of weight to the most recent price. Here Tool B is an EMA and Tool A is a MACD.