This leading trend-following indicator consists of three exponential moving averages that give buy or sell signals when they cross. The MACD consists of a solid line and a dashed line. The solid line is the MACD line and the dashed line is the signal line. When the fast MACD line crosses above or below the slower signal line, then a buy or sell signal kicks in.
The MACD line is the difference between two exponential moving averages (EMAs). The standard moving averages used are the 26-day EMA and the 12-day EMA. The difference between these two averages produces the fast line. To calculate the slow line or signal line, use the 9-day EMA of the fast line. The advantage of using the MACD is that it will provide a bullish or bearish consensus with less choppiness than plain moving averages do.
The right way to use MACD is:
1. Trade from the long side when the fast line crosses above the slow line, and when it stays above the slow line.
2. Trade from the short side when the fast line crosses beneath the slow line, and when it stays beneath the slow line.
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