Basic Techniques  |  OCT 1999

Trading the MACD by Jayanthi Gopalakrishnan

Trading The MACD You can trade Gerald Appel’s moving average convergence/ divergence profitably in relatively flat markets. Here’s how. The moving average convergence/ divergence (MACD) is a momentum oscillator developed by Gerald Appel in the early 1970s. For this oscillator, momentum implies that fluctuations in prices are reflected in the MACD; if there is a sudden increase in price, the MACD will move upward. It fluctuates above and below a zero line — which is why it is known as an oscillator. The zero line is the horizontal equilibrium line and if the indicator is above the zero line, it is a bullish signal and if below the zero line, a bearish signal. The MACD does what its name suggests: it measures the divergence or convergence of a shorter moving average with a longer moving average. It is represented in two ways, one as a line form and the other as a histogram. Figure 1 illustrates the line and histogram versions of the MACD for the same security.

by Jayanthi Gopalakrishnan