Description
Moving Average Convergence Divergence is used to signal changes in trend direction as well as trend momentum. Two Exponential Moving Averages are used to calculate Moving Average Convergence Divergence by subtracting the longer EMA from the shorter EMA. Signal line is produced by calculating EMA of MACD.
Formula
macdArray[] = shortEMA-longEMA
signalArray[] = period3EMA(macdArray[])
Interpretation
Moving Average Convergence Divergence line crossing above the signal line is an indication of a buy signal. MACD line crossing below the signal line triggers a sell signal. Divergence as the name suggests occurs when the price of an underlying security diverges from the MACD line signaling the end of a trend.
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