The red line is the signal line. IndicatorBuffers 6 ; if! Since the Rising Wedge has a strong bearish potential, a breakdown through its lower level could be used in combination with a bearish MACD cross to close the trade. On most trading platforms, the MACD indicator typically comes with the default parameters 26, 12, and 9. December 24, at 6:
The two lines that are drawn are NOT moving averages of the price. In our example above, the faster moving average is the moving average of the difference between the 12 and period moving averages. The slower moving average plots the average of the previous MACD line.
Once again, from our example above, this would be a 9-period moving average. This means that we are taking the average of the last 9 periods of the faster MACD line and plotting it as our slower moving average. If you look at our original chart, you can see that, as the two moving averages separate, the histogram gets bigger. As the moving averages get closer to each other, the histogram gets smaller. And that, my friend, is how you get the name, M oving A verage C onvergence D ivergence!
Whew, we need to crack our knuckles after that one! When a new trend occurs, the fast line will react first and eventually cross the slower line. From the chart above, you can see that the fast line crossed under the slow line and correctly identified a new downtrend. Created by James Stanley. The signal line is simply a moving average built on the value of the MACD line. By default, this value is commonly set at 9 periods.
As you can see from the above graphic, some of these MACD signals would have worked out beautifully, while others leave something to be desired. This highlights the reason that traders will often want to look at other indicators or mechanisms of deciding which signals to take or which to ignore. But, an alternative for traders is to simply use different inputs. The default MACD inputs of 12, 26, and 9 are the more common settings for the indicator. The fast MA is listed first, followed by the slow MA, followed by the input of the signal line.
Traders looking to take signals solely from MACD, without any additional indicators to assist in grading trends or momentum are often better served by slowing down the indicator by using longer-period moving averages in the inputs. A common set of inputs to accomplish this goal is the inputs of 21, 55 periods.
The chart below will show the difference between the default of 12, 26, and 9 above with the inputs of 21, 55, and 9 below. Notice that the MACD indicator below gives fewer signals, with the goal of each signal being more reliable.
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