How does the MACD indicator work?

* Calculation:

* The MACD indicator is calculated by subtracting a short-term exponential moving average (usually 12 days) from a long-term exponential moving average (usually 26 days).

* The line resulting from this subtraction is called the MACD line.

* Then another exponential moving average (usually 9 days) is calculated for the same MACD line, called the signal line.

* Interpretation:

* Crossover: When the MACD line crosses the signal line upwards, it indicates increased momentum and an increased likelihood of an uptrend continuing.

* Bearish Crossover: When the MACD line crosses the signal line downwards, it indicates a decrease in momentum and an increased likelihood of a downtrend continuing.

* Divergence: Divergence occurs when the MACD line moves in the opposite direction of the price action.

* Positive Divergence: When the MACD line makes a new low while the price makes a higher low, it indicates potential buying strength.

* Negative Divergence: When the MACD line makes a new high while the price makes a lower high, it indicates potential selling strength.

* Histogram Bars:

* The difference between the MACD line and the signal line is represented in the form of histogram bars.

* The height of the bars indicates the strength of the momentum, while the color of the bars (red or green) indicates the trend.