Basic Components
The graph above shows a stock with a MACD indicator underneath it. The indicator shows a blue line, a red line, and a histogram or bar chart which calculates the difference between the two lines. Values are calculated from the price of the stock in the main part of the graph.
For the example above this means:
- MACD line (blue line): difference between the 12 and 26 days EMAs
- signal (red line): 9 day EMA of the blue line
- histogram (bar graph): difference between the blue and red lines
Mathematically:
- MACD = EMA – EMA
- signal = EMA
- histogram = MACD – signal
The period for the moving averages on which an MACD is based can vary, but the most commonly used parameters involve a faster EMA of 12 days, a slower EMA of 26 days, and the signal line as a 9 day EMA of the difference between the two. It is written in the form, MACD (faster, slower, signal) or in this case, MACD(12,26,9).
Read more about this topic: MACD
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