The MACD indicator

I’ve outlined the principles on which the MACD indicator is based. This indicator is calculated using two exponential moving averages; by default 12-day and 26-day EMAs are usually used. The difference between them is calculated and charted as a line known as the MACD line, and this line will appear the same as the moving average difference line at the bottom of figure 6.1. Now comes the cunning part — the MACD line is exponentially smoothed; that’s to say, it’s treated just like a price line, and a nine-day exponential moving average of it is calculated and shown as another line known as the signal line. Because the signal line is an exponential moving average of the MACD line it will lag the MACD line, so when both are charted they will ....