The Moving Average Convergence Divergence ( ) is a trend-following . The indicator tells us the relationship between two moving averages of the security price. To determine subtract the 26-period from the 12-period . There is a nine-day of the that is used as the "signal line." Whenever crosses the signal line that is an indication to sell or buy.
The histogram indicates strength. Dark green means the bulls are stronger. Light green means the bulls are weak. Dark red means the bears are strong. Light red means the bears are weak. The centerline for is 0.
What is a divergence?
A divergence occurs when the price rise to a new high but the indicator new peak is lower than the previous high peak.
Forecastability of the divergence
The divergence indicator predicts a future for the stock. However, do not assume a divergence will be all the time. There is an exception: in a strong bull market, the divergence will transform itself and the uptrend may continue.
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Disclosure: Article written by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.