|  MAR 1991

Moving Average Convergence/Divergence (MACD) by Thom Hartle

Moving Average Convergence/Divergence (MACD) by Thom Hartle The moving average convergence/divergence (MACD) method was developed by Gerald Appel as a technique to signal trend changes and indicate trend direction. The procedure uses the difference between two exponentially smoothed price data, called the MACD line, and an exponentially smoothed series of this difference, which is called the signal line. An exponential smoothing of price data has the advantage of responding quickly to price changes while smoothing data in a consistent manner. The calculation of a exponentially smoothed moving average (EMA) is simple. You start with the difference between today's closing price and yesterday's EMA. Multiply this difference by a constant, then add this value to yesterday's EMA. This is today's EMA value. The constant is from the equation 2/(n+1) where n is selected to produce a constant that will approximate n days of a simple moving average. For example, if you want the EMA to simulate a nine-day moving average you would use n = 9, 2/(9+1) = 0.20 as the constant.

by Thom Hartle