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Hello everyone from Kanaliz! After a long break, we are with you again with a new video. This week, we have compiled a detailed explanation of the MACD indicator, which is used by almost everyone. We compiled it because we wanted to both correct a mistake in the previous video and elaborate the narration much more. We hope we have done a useful work. We wish you a pleasant viewing in advance.
If you're ready, let's get started. The Convergence of Moving Averages Divergence, commonly known as MACD, is an indicator that shows the relationship between two different exponential moving averages and is frequently used in technical analysis due to the positive results it gives in buying/selling. What makes MACD so popular is that it is a combination of three different types of indicators. The first is that it is a trend indicator because it uses moving averages. Second, it is a momentum indicator because it plots histograms, taking the difference between the values of an EMA of Moving Averages and Moving Averages. The third is that it is a signal indicator because it produces buy/sell signals by using the intersections of the moving averages.
In 1979, Gerald Appel developed the MACD line. Later in 1986, Thomas Aspray added the Histogram feature to Appel's MACD.
The graphic drawn by the MACD indicator is as in the image. It consists of three main components and one auxiliary component. These; The MACD Line is the Signal Line, the MACD Histogram, and the Zero Line. So what are these components and how are they calculated? In fact, the indicator does all the calculations for us automatically. We do not need any formula when using it. However, it is useful to know how it is calculated in order to have an idea.
MACD Line; It is calculated by subtracting the 26-period Exponential Moving Average from the 12-period Exponential Moving Average. That is, the Indicator draws the MACD Line by calculating the difference of these two exponential moving averages. The Signal Line is also called the Trigger line. It is calculated by taking the 9-period Exponential Moving Average of the MACD Line. That is, the Indicator calculates the Exponential Moving Average of the MACD Line and draws the Signal Line. In other words, the signal line is the indicator of the indicator.
MACD Histogram; As prices change, the difference between the MACD Line and the Signal Line will constantly change. The MACD histogram takes this difference and plots it into an easily readable histogram. The difference between the two lines oscillates around a Zero Line. The region above the zero line is called the positive region, and the region below the zero line is called the negative region. If the MACD Line is on the zero line; The short and long period EMA, that is, the EMA of 12 and the EMA of 26 are of equal value. If the MACD Line is in the positive zone; The short period EMA value is greater than the long period EMA value. If the MACD Line is in the negative zone; The short-term EMA is smaller than the long-term EMA.
There are some settings that can be changed in the indicator. The values 12, 26 and 9 used in the MACD are the default input ranges. The user can make changes to these settings if he wishes. The most commonly used values are 12 periods for the short exponential moving average; For the long exponential moving average, it is 26 periods. These two values form the MACD Line. The most commonly used signal line value is 9 periods. This value creates the Signal Line. The user can make changes to these settings if he wishes. However, changes without backtesting will result in erroneous results. Checking the boxes at the bottom ensures that Simple Moving Average is used in calculations, not Exponential Moving Average.
So, in which chart timeframe does the MACD indicator give the best results? Or which input ranges provide better results? Euro/Dollar parity, ounce gold and ounce silver indicator, the best results on the 3-hour chart; In stocks, it gives a 1-hour chart. The best input range is 7-22, 7-23 and 7-24 fast and slow length values, not the default settings. In addition, you can have detailed information about the backtest we have done before, by clicking on the suggestion card above.
So, how should MACD components be interpreted and how should they be used in BUY/SELL transactions? MACD Line and Zero Line Intersections; If the MACD Line continues to rise by cutting the zero line upwards, it can be interpreted that the positive trend is strengthened, and if it continues to decrease by cutting it downwards, the negative trend can be interpreted as getting stronger. This oscillation of the MACD Line in positive or negative zones gives us information about the price trend of the relevant financial asset, that is, its trend.