The MACD (Moving Average Convergence Divergence) is a technical indicator used in trading to identify changes in the direction, strength and duration of a trend. It is very useful for both detecting potential buy and sell points in a financial asset.

What is MACD?

The MACD is based on the relationship between two moving averages of different time frames:

Fast moving average (usually 12 periods).

Slow moving average (usually 26 periods).

The difference between these two moving averages generates the MACD, which is presented as a line on the chart. In addition, a third line called the "signal line" (usually 9 periods) is added to facilitate buy or sell signals.

What is it for?

The MACD helps traders identify:

Moving Average Crossovers: When the MACD line crosses above the signal line, it may be a buy signal. If it crosses below it, it could be a sell signal.

Divergences: If the asset price is rising, but the MACD is falling (or vice versa), it may indicate that the trend is losing strength and a reversal is imminent.

Trend strength: When the moving averages are far apart, it means the trend is strong, either up or down.

How to use?

1. Line Crossover: If the MACD line crosses above the signal line, it may be a signal to buy. If it crosses down, it may be a good time to sell.

2. Ground Zero: When the MACD is above 0, it indicates an uptrend, and when it is below, a downtrend. The further away from 0 it is, the stronger the trend.

3. Histogram: The histogram is a visual representation of the difference between the MACD and the signal line. If the bars on the histogram are getting larger, the trend is strengthening. If they are getting smaller, the trend could be weakening.

In short, the MACD helps you identify good times to enter or exit a trade, based on recent price action.