Over the years numerous technical indicators have been developed to describe the stock performance, or, hopefully to predict future price movements. In this section we introduce five of the most useful indicators, provide examples, and explain how they are calculated.

MACD

Figure 8. MACD

MACD stands for Moving Average Convergence and Divergence. It is simply the difference between a shorter period exponential moving average and a longer period exponential moving average. For example,

MACD(8, 17) = EMA(8) - EMA(17)

The MACD is often plotted together with a "Signal Line," the 9-day moving average of the MACD. A basic MACD signal is to buy when the 9-day signal line moves above the MACD line and to sell if it crosses below the MACD line.

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