# How do you interpret MACD indicators

## MACD calculation: how it works

The MACD indicator is an instrument for market analysis.

The abbreviation stands for Moving Average Convergence / Divergence or in German: Convergence / divergence of the moving average.

The indicator has the task of assessing the financial markets and recognizing both trend direction and trend strength or weakness as well as giving buy or sell signals.

### The MACD indicator

The MACD indicator was developed by G. Appel in the late 1970s and is one of the most widely used indicators for price trends today. He is therefore able to indicate trend directions and trend strengths and to recognize trend changes.

The MACD represents the difference between two exponential moving averages. Accordingly, values from a certain period of time are recorded, which are then smoothed or highlighted. The moving average is calculated from these values.

Although the indicator has a simple structure, it shines with two important indicator properties. He can determine the high and low points of a trend and is thus able to indicate both the trend direction and the trend strength.

Since the MACD can show the smallest deviations in the course of the course, it also generates trading signals in conjunction with a signal line.

**More on the subject:**MACD indicator: what is it for?

### MACD calculation

At first glance, the calculation of the MACD seems more complicated than it actually is.

In simple terms, the values of the two exponential moving averages of different lengths are subtracted from each other, i.e. the shorter average is subtracted from the longer one. The result is then shown in a trend line.

For the short average, 12 days are set as the parameter, whereas for the long average, 26 days are used. These framework conditions were created on the basis of the market cycles.

Another parameter is the signal line with a smoothing of nine days, which is calculated as the moving average of the MACD line.

The intersection of the two lines can be understood as a buy or sell signal, depending on whether it is up or down. They thus represent trading signals. Deviations from the base value are referred to as bullish divergence or bearish divergence.

In these cases, the trend does not follow the new high or low of the underlying, which indicates that the trend is weakening. Further indicators are then important for a reliable analysis.

### Importance of the MACD calculation

The MACD calculation is one of the most popular forms of technical analysis. It can provide buy and sell signals, but is also a trend-following indicator.

This property as a trend follower or trend filter has the disadvantage that, due to the time delay in the MACD calculation, it is only possible to rely on existing trends.

The susceptibility to incorrect assessments, especially in weak market phases, must also be taken into account when analyzing the MACD.

**More on the subject:**The MACD strategy: the indicator as a signal generator

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