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Finance Dictionary and Glossary of Investment Terms
Moving Average Convergence/Divergence (Macd)
A technical indicator developed by Gerald Appel that signals overbought and oversold conditions by measuring the intensity of public sentiment. The Moving Average Convergence/Divergence (MACD) indicator is created by calculating the difference between two exponential moving averages. A third exponential moving average is plotted on top of the MACD as a trigger line to provide buy and sell signals. One of the popular trading strategies using MACDs is crossovers. Generally, when the MACD crosses above the trigger line, this is a buy signal. When the MACD crosses below the trigger line, this is a sell signal. Some technicians recommend entering long positions using the 8-day/17-day MACD, with the 9-day MA as the trigger line. Similarly, they use the 12-day/25-day MACD with the 9-day MA to exit long positions. MACD is especially valuable when used in conjunction with a momentum indicator such as the Stochastic oscillator or the Relative Strength Index (RSI). Since MACD is a sensitive indicator of public sentiment, it can be applied to mutual funds as well as stocks. When using Investor charts to study MACD, you can select whatever moving averages work best for your investing strategy. Check this feature out in Investor''s Stock area under the Charts tab on the left navigation bar.