MACD: ¿What is it and how does it work?

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You have surely observed the use of the MACD in several studies, however newbies may find themselves wondering what it is and how it can benefit our operations in the financial markets by appealing to its many ways.
¿What is the MACD?

The MACD (Moving average convergence / divergence) is a moving average of convergence / divergence that follows the trend made by Gerald Appel. It is a momentum indicator that captures the trend and shows the interaction between 2 moving averages of costs.

The MACD consists of the following elements by default:

MACD cost = (12 period EMA - 26 period EMA )

• Signal line = MA 9 from the previous calculation

MACD histogram = ( MACD value - signal line)

Therefore, this indicator helps us to identify the development as the trend.

However, we have the possibility of adjusting it for different terms according to our operations:

• Corto plazo: Instant EMA 13 Slow EMA 21 SMA MACD 1 / al cierre

• Medium term: instant EMA 34 slow EMA 144 SMA MACD 1 / Use at close

• Long term: Immediate EMA 21 Slow EMA 34 SMA MACD 1 / Use at close
How do we have the possibility of trading with the MACD?
There are 2 practical procedures to operate with this indicator:

• When the MACD line crosses above the signal we open positions and once the first crosses below the other we close positions

• Once the two lines cross above the zero degree we open the operation and once the two cross below we close our operation

Another comfortable style is based on the histogram:
In this first procedure, we will base the operations according to the direction of the histogram:

• Purchase: the histogram goes from a negative cost to a positive cost to trade in the market

• Marketing: the histogram goes from a positive cost to a negative cost to sell in the market

operating divergences
All the indicators allow us to anticipate a turn in the trend by showing us a direction opposite to which the cost is going. In which case of the MACD we will have the possibility of identifying it by detecting the following:

Bullish divergence: 2 lows are formed in a row and the second one is lower. The histogram reaches 2 increasing highs, the second is higher than the previous

Bearish divergence: On the contrary, there are 2 bullish highs, the second one higher than the previous one. The histogram reaches 2 descending maximums, the second one lower than the previous one

We have asked Luis Francisco Ruiz two questions about this interesting indicator.

-Being a momentum indicator , for what type of trading is it more efficient?
The indicator can be used for all kinds of trading. It is knowing how to know it and interpret it in the time frame in which we are using it.

-There are 3 procedures to operate with it, crossing lines (between the two and together above or below the degree of 0 and histogram). Can it be used to gradually close or open positions or should we focus on one method?

The cross between MACD and signal allows us a shorter-term operation with more operations and, as a general rule, in opposition to trend or range. The crossing of the MACD with its neutral band is a more trend operation and with fewer operations. In terms of what is our intention, we will apply one or the other.
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