𝓀 What Is the Mꦗoving Average Convergence Divergence (MACD)?

The moving average convergence divergence (MACD) is a popular technical momentum indicator, calculated for use with a variety of 澳洲幸运5官方开奖结果体彩网:exponential moving averages (EMAs) and used to assess the ꦜp♊ower of price movement in a market.

Calculating MACD

There are several calculations involved in the creation of the total (MACD) indicator, all involving the use of exponential movi𝔍n🐭g averages.

An EMA is calculated as follows:

• Calculate the 澳洲幸运5官方开奖结果体彩网:simple moving average (SMA) for the chosen number of time periods. (The EMA uses an SMA as the previous period's EMA to start its calculations.) To calculate a 12-period EMA, this would simply be the sum of the last 12 time periods, divided by 12.

• Calculate the weighting multiplier using this equation:
  $\frac{2}{12+1}= 0.1538$12+12​=0.1538

Calculate the 12 EMA sequentially as:
$\left(Close - EMA_{previous~period}\right)* 0.1538 + EMA_{previous~period}$(Close−EMAprevious period​)∗0.1538+EMAprevious period​

Putting together the MACD requires simply doing all of the following EMA calculations for any given market instrument (a stock, future, 澳洲幸运5官方开奖结果体彩网:currency pair, or 澳洲幸运5官方开奖结果体彩网:market index):

1. Calculate a 12-period EMA of the price for the chosen time period.
2. Calculate a 26-period EMA of the price for the chosen time period.
3. Subtract the 26-period EMA from the 12-period EMA to create the MACD line.
4. Calculate a nine-period EMA of the MACD line (the result obtained from step 3) to create the signal line.
5. Subtract the signal line from the MACD line to create the histogram.

This nine-period EMA line is overlaid on a histogram that is created by subtracting the nine-period EMA from the result in step 3, which is called the MACD line, but it is not always visibly plotted on the MACD representation on a chart.

The MACD has a zero line to indicate positive and negative values. The MACD has a positive value whenever the 12-period EMA is above the 26-period EMA and a negative value when the 12-period EMA is below the 26-period EMA.

Common Calculation Mistakes

One frequent mistake occurs when traders incorrectly calculate the two exponential moving averages tha🎶t form the basis of the MACD. The MACD line is derived by subtracting the 26-period EMA from the 12-period EMA, but🐎 failure to correctly determine these EMAs can lead to inaccurate signals.

For instance, using a simple moving average instead of an EMA, or incorrectly weighting recent price data in the calculation, can distort the resulting MACD values. This miscalculation ultimately leads to wrong results❀.

Another common error lies in the calculation of the signal line. The signal line is the 9-period EMA of the MACD line. Traders sometimes overlook the need for the signal line to be calculated using the same EMA formula as the MACD line. However, if you don't do this, you'll end up with mismatched results.

Last, don't discount the importance of data granularity when calculating the MACD. For instance, using incomplete or incorrect price data for the calculation periods can skew the MACD and signal line results. This is particularly common when traders rely on intraday data but fail to account for all price movements or choose an inappropriate time frame.

Alternative MACD Calculations

Thಞere are many variations to MACD; below is a high-level look at how to 🐎calculate some of those variations:

• Triple Exponential Moving Average (TEMA) MACD: The TEMA MACD is calculated by applying three different exponential moving averages to the price data. First, the MACD line is calculated as the difference between the 12-period EMA and the 26-period EMA, just like the traditional MACD. Then, the TEMA formula is used to smooth this MACD line by combining the first, second, and third EMAs.
• Smoothed MACD (SMACD): The Smoothed MACD takes the traditional MACD calculation and applies additional smoothing to the MACD line. Instead of using the standard 9-period EMA to smooth the MACD line, traders use a longer smoothing period or even a weighted moving average to reduce the impact of short-term fluctuations. The calculation involves first subtracting the 26-period EMA from the 12-period EMA just like the standard MACD. However, the next step is to then apply a secondary smoothing factor to the resulting MACD line.
• Exponential Moving Average MACD with Adjusted Periods: The EMA MACD with adjusted periods involves changing the standard 12-period and 26-period settings used in the original MACD formula. For example, a trader might choose 5 and 13 periods instead of 12 and 26 to make the MACD more sensitive to price changes.
• Hull Moving Average (HMA) MACD: The HMA MACD replaces the standard exponential moving averages with the Hull moving average, which aims to minimize lag while maintaining smoothness. To calculate the HMA, the weighted moving average of the price data is computed, then a second WMA is applied to the first WMA to reduce the lag even more.
• Wilder's Smoothing MACD: Wilder's Smoothing MACD differs from the traditional MACD by using Wilder’s smoothing method rather than the typical EMA. The formula for Wilder’s smoothing applies a different technique, where the current value is averaged with the previous value using a smoothing constant. For the MACD, the calculation begins by subtracting the 26-period EMA from the 12-period EMA as usual, but instead of the 9-period EMA for the signal line, Wilder's smoothing is applied. This method reduces the impact of extreme price changes, resulting in a more stable MACD line and signal line, which is less likely to produce erratic signals.
• Laguerre MACD: The Laguerre MACD uses the Laguerre filter, a signal-processing technique that applies a recursive smoothing formula to reduce lag. To calculate the Laguerre MACD, the price data is smoothed using the Laguerre filter, and then the MACD line is derived in more traditional ways.
• 澳洲幸运5官方开奖结果体彩网:Percentage Price Oscillator (PPO): The PPO differs from the traditional MACD by calculating the difference between two EMAs as a percentage of the longer EMA. This is done instead of finding out the absolute value.

The Bottom Line

The MACD uses exponential moving averages in sequence to produce 澳洲幸运5官方开奖结果体彩网:a popular indicator of momentum, which allows technical traders to spot trends and reversals. While MACD can provide some useful information, it 澳洲幸运5官方开奖结果体彩网:should not be the only tool you use when trading.