In this article we’ll show you how to set will the popular MACD (Moving Average Convergence / Divergence) oscillator / indicator accurately.
How to Calculate Olymp Trade MACD
The linear MACD is calculated by subtracting the slower exponential moving average with the longer period from the faster exponential moving average with a shorter period.
In order to eliminate random fluctuations for most cases, the exponential moving average (EMA) is used to smooth the result.
- MACD = ЕМАl(P) – EMAs(P)
- Signal = EМАa (ЕМАl(P) – EMAs(P)). This is the signal line.
- Histogram of the difference = (1) – (2). These are the vertical lines on the indicator.
where:
EMAl(P) — an exponential moving average with a longer period.
ЕМАs(P) — an exponential moving average with a shorter period.
EМАa(P) — the smoothing moving average with a shorter period of the difference between the two exponential moving averages.
Although a closing price is normally used for P, other prices may also be used such as High, Open, Close, Low, Median, Typical и т. д, etc.
The following MACD settings are used on daily charts by default:
- EMAI – an EMA of closing prices for 26 days (month).
- EMAs – an EMA of closing prices for 12 days (two weeks).
- EMAa – an EMA for 9 days.
Indicator values
This indicator is displayed as a histogram and the values shown are not the moving averages’ specific values, but rather the relative difference between them. Therefore, the indicator’s histogram varies in relation to the zero line. An asset growing is indicated by positive values, while an asset falling is indicated by negative values.
The MACD therefore also contains indicators following a trend. This is why it can be used for both an oscillator and a trend indicator.
Summary
The MACD is a combination of momentum and trend indicators and it gives huge amounts of information about market trends. It is also capable of determining the reversal points of a trend, and allows for working within an existing trend.
Like most indicators, it is however very dangerous to use the MACD’s signals without further analysis. Although the MACD is well suited for creating trading algorithms, it is not recommended that you only rely on its signals.