MACD Oscillator

The Moving Average Convergence-Divergence (MACD) captures trend and momentum. It is used to spot changes in strength, direction, momentum, and duration of a trend. The MACD fluctuates above and below the zero line also called the center line. It is unbounded and has no upper and lower limits.

The MACD Oscillator consists of:

  • MACD Line (Blue Line)
  • Signal Line (Red Line)
  • Center Line
  • The difference between the MACD Line and Signal Line.

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Ways to Interpret the MACD Oscillator

Interpretation of the MACD Oscillator
Buy When the MACD Line (Blue Line) crosses the Signal Line (Red Line) upwards.
Buy When the MACD Line (Blue Line) or the Signal Line (Red Line) crosses the Center Line upwards.
Buy When the MACD line (Blue Line) falls steeply below the Signal Line (Red Line).
Sell When the MACD Line (Blue Line) crosses the Signal Line (Red Line) downwards.
Sell When the MACD Line (Blue Line) or the Signal Line (Red Line) crosses the Center Line upwards.
Sell When the MACD line (Blue Line) rises suddenly above the Signal Line (Red Line).

 

Look for the Following Divergences

Divergences
Identify a Bottom Forming When the price of the stock goes lower but the MACD Oscillator goes higher.
Identify a Top Forming When the price of the stock goes higher but the MACD Oscillator goes lower.

 

Example 1

MACD Oscillator 1
Source: Thinkorswim by TDAmeritrade

 

Example 2

MACD Oscillator 2
Source: Thinkorswim by TDAmeritrade

 

Example 3

MACD Oscillator 3
Source: Thinkorswim by TDAmeritrade

 

Example 4

MACD Oscillator 4
Source: Thinkorswim by TDAmeritrade

 

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