MACD-What is MACD?

The MACD is a subchart, which means it usually appears as a separate chart below or above the price chart. It’s based on two exponential moving averages, one shorter-term and one longer-term. Basically, the shorter-term EMA represents the recent price movements of the asset, while the longer-term EMA represents longer-term price movements. So, when the shorter-term EMA is above the longer-term EMA, it means recent prices are stronger.

The three components of MACD

Before we get into the signal part, let’s meet the three components in the subchart: the MACD line, the signal line and the histogram.

• The MACD line is calculated by subtracting the long-term EMA (usually 26-d EMA) from the short-term EMA (usually 12-d EMA). EMA is a moving average that gives more weight to the latest closing prices of the asset. The 12-d EMA responds faster to price changes than the 26-d EMA.
• The signal line is a variant of the MACD line. It is usually calculated as the 9-d EMA of the MACD.
• The histogram shows the difference between the MACD and the signal line in a bar. If the MACD is below the signal line, the bar is red with a negative value. If the MACD is above the signal line, the bar is green with a positive value.

*Please note that you can customize the length of your MACD and signal line according to your own needs.