Over the years numerous technical
indicators have been developed to describe the stock performance,
or, hopefully to predict future price movements. In this section
we introduce five of the most useful indicators, provide examples,
and explain how they are calculated.
Figure 8. MACD
MACD stands for Moving Average
Convergence and Divergence. It is simply the difference between
a shorter period exponential moving average and a longer period
exponential moving average. For example,
MACD(8, 17) = EMA(8) - EMA(17)
The MACD is often plotted together with a "Signal Line," the 9-day moving average of the MACD.
A basic MACD signal is to buy when the 9-day signal line moves
above the MACD line and to sell if it crosses below the MACD line.