IndicatorForex.com

The most famous and well-known technical indicator is no doubt the Moving Average Convergence Divergence, or the MACD. The MACD was created by Gerald Appel at the 1960s, which makes it one of the oldest technical tools used by traders.

 Absolutely NO THINKING is needed, just buy when Blue and sell when Red!

Calculation
The MACD is a trend-following indicator, that provides buy and sell signals using calculation based on two Moving Averages. The MACD value equals the difference between two Exponential Moving Averages, usually the 12-period and 26-period Moving Averages. Than, the difference is smoothed using another EMA, usually 9-periods. This is called the Signal value. Crosses between the main value and the signal value create the signals.

An addition to the MACD Indicator is the MACD Histogram, which plots the difference between the Main MACD value and the Signal line of MACD.

Formula
MACD Main = EMA12[Price] - EMA26[Price]
MACD Signal = EMA9[MACD Main]
MACD Histogram = MACD Main - MACD Signal

Trading Signals
The MACD is used in trading in several ways:

Trading System 1: Signal Line Cross
This is the simplest, most common trading system that incorporates the MACD in its trading. Entries are generated whenever the MACD Signal Line is crossed by the MACD Main Line. If the signal line is crossed from below, a buy signal is signaled and if a cross was from above, a short signal is signaled.

This trading system is generally better for trending periods and fails miserably in ranging markets. Make sure to add range filters when you use it.

Trading System 2: Zero Line Cross
This is a another trading approach to the MACD indicator. Entries are signaled when MACD main value crosses the zero line (0 value). A cross from below signals Buy signal and cross from above signals Sell signal.

Trading System 3: Divergence
This is the most complex and subjective trading approach to the MACD. Traders that trade divergences wait for periods where the price action does not resemble the action and patterns in the MACD value line. This indicates that price is about to reverse and match the patterns at the MACD. It is a highly subjective trading method that requires much experience in trading in order to profit from. Using this system is highly unrecommended for beginners.