A momentum indicator that doubles as a trend signal.
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Overview
The MACD (Moving Average Convergence Divergence) is one of the most widely used technical indicators, serving as both a trend-following and momentum tool. Developed by Gerald Appel in the late 1970s, it is built from three components: the MACD line (difference between the 12-period EMA and 26-period EMA), the signal line (9-period EMA of the MACD line), and the histogram (MACD line minus signal line).
The primary trading signals are: (1) MACD line crosses above/below the signal line β a bullish/bearish signal; (2) MACD crosses above/below zero β the "centreline crossover," confirming trend direction; and (3) divergence between MACD and price β one of the most reliable reversal signals.
The histogram is particularly valuable for gauging momentum: expanding bars indicate increasing momentum in the direction of the trend, while shrinking bars suggest the move is losing steam before a potential reversal. A histogram that peaks and begins to contract is an early warning of a signal line crossover ahead.
MACD works best as a trend-confirmation tool on timeframes of 1H and above. On lower timeframes it generates excessive noise. Combining MACD signals with structure analysis (support/resistance) and volume confirmation significantly improves signal quality.
Strategy Code
This is a TradingView Pine Script example for this indicator. Paste it into the TradingView Pine Editor, add it to your chart, and adjust inputs for your market and timeframe.
//@version=6
strategy("MACD β Moving Average Convergence Divergence", overlay=true)
fast = input.int(12, "Fast")
slow = input.int(26, "Slow")
sig = input.int(9, "Signal")This is a thinkorswim ThinkScript example for this indicator. Open thinkorswim, create a custom study, paste the script, and apply it to your chart.
def macd = MACD()."Value";
def signal = MACD()."Avg";
def buySignal = macd crosses above signal;
def sellSignal = macd crosses below signal;
AddOrder(OrderType.BUY_AUTO, buySignal, close, 1, Color.GREEN, Color.GREEN, "MACD Buy");Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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