The Moving Average Convergence Divergence indicator, known as "MACD," is chart feature that traders use to analyze price movement. It is based on the moving average, which is simply an average of market prices over a set duration of time. The MACD subtracts one moving average from another, then creates a moving average of this result, called a "signal line." The MACD appears as a sub-graph on a chart, rising and falling based on changes in price momentum.
Open your charting software and view any chart you wish.
Click the button or menu within the program for selecting technical indicators. The exact location of this operation varies between software vendors, but will almost always be titled "indicators," "studies," "oscillators" or "analysis." It may be a button on the chart, an option available by right-clicking on a chart or a menu above the chart.
Select the MACD indicator from the list of indicators available to add to the chart.
Configure the three parameters for the MACD on this screen that appear after you click to add the indicator. Most programs will present you with clear options to change the duration for the "fast," "slow" and "signal line" moving averages. These are the three main parameters of the MACD.
Click "Add" or "OK" on this window as appropriate for your particular program to set these MACD parameters.
The default setting for the MACD is fast-moving average of 12, a slow average of 26 and a signal line of 9, noted as 12-26-9. However, you may wish to alter these, and can change them to anything you wish. If you make all of these averages longer by increasing their numbers, you will see a MACD that measures price momentum changes over a greater length of time. If they are shorter, the MACD is more sensitive to quick fluctuations and ideally suited to very short-term trading.
Gerald Appel, the man who created the MACD, suggests two different settings on a daily chart. A setting of 8-17-9 may provide good entry signals, while you instead follow a 12-25-9 MACD for selling signals. Other well-known traders propose different values for these parameters. It is highly personal and based on the type of trading that most satisfies you.
The MACD can be a good addition to any chart, but be careful not to rely entirely on this indicator. No single technical analysis tool is foolproof, and all indicators provide false signals. Use the MACD in the context of a larger trading strategy that also includes other indicators and techniques.