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MACD Oscillator Technical Analysis Fast Line and Signal Line

MACD is used in various ways to give technical analysis information.

  1. center line crosses indicate bullish or bearish markets; below zero is bearish, above zero is bullish.
  2. Crossovers indicate a buy or sell signal.
  3. Oscillations can be used to indicate oversold and overbought regions
  4. Used to look for divergence between price and indicator.

 

Construction of This Indicator

The MACD is constructed using two exponential moving averages and this indicator plots two lines. The two default exponential moving averages used are 12 and 26. Then a smoothing factor of 9 is also applied when drawing.

 

Summary of how this indicator is drawn

MACD uses 2 EMAs + a smoothing factor (12, 26 Exponential Moving Averages and 9 smoothing periods)

This indicator only plots two lines- the fast line and the signal line

 

MACD lines- the fast line and the signal line

MACD Lines

 

  • The Fast Line is the difference between the 26 EMA and 12 EMA
  • The signal line is the 9 period moving average of the MACD fast line.

 

Implementation

This indicator implements the MACD line as a continuous line while the signal line is implemented as a histogram. These two are then used to generate trading signals using the crossover method.

 

There is also the center-line which is also known as the zero mark and it is a neutral point between buyers and sellers.

 

Values above the center-mark are considered bullish while those below are bearish.

 

The MACD being an oscillator indicator, oscillates above and below this center line.

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