What is the proper process of MACD calculation?

<p id="isPasted">The Moving Average Convergence Divergence (MACD) is a popular technical analysis indicator that measures the relationship between two moving averages of a security's price. The MACD calculation process involves the following steps:</p><ol><li>Calculate the 12-period exponential moving average (EMA) of the security's closing price.</li><li>Calculate the 26-period EMA of the security's closing price.</li><li>Subtract the 26-period EMA from the 12-period EMA to obtain the MACD line.</li><li>Calculate the 9-period EMA of the MACD line to obtain the signal line.</li><li>Plot the MACD line and the signal line on the same chart.</li></ol><p><br></p><p>The MACD line is the main component of the MACD indicator and represents the difference between the 12-period and 26-period EMAs. The signal line is a 9-period EMA of the MACD line, which is plotted alongside the MACD line to provide trading signals.</p><p>When the MACD line crosses above the signal line, it is considered a bullish signal, indicating that the security's price may be trending upwards. Conversely, when the MACD line crosses below the signal line, it is considered a bearish signal, indicating that the security's price may be trending downwards.</p><p>It's important to note that while the MACD can be a useful tool for technical analysis, it's not a standalone trading strategy and should be used in conjunction with other indicators and analysis techniques. Additionally, the MACD calculation can be adjusted to suit individual trading strategies or market conditions.</p>

<p>The Moving Average Convergence Divergence (MACD) is a technical indicator used in trading to identify trends and momentum in security. To calculate the MACD, one needs to calculate the 12 and 26-period Exponential Moving Averages (EMAs) of the security's closing price. The difference between the 12-period EMA and the 26-period EMA gives us the MACD line. A signal line, which is a 9-period EMA of the MACD line, is then calculated. Traders use the MACD to identify buy or sell signals when the MACD line crosses above or below the signal line, or when the histogram changes direction. The histogram is calculated as the difference between the MACD line and the signal line. However, traders should use MACD with other technical indicators and fundamental analysis to make informed trading decisions.</p>

<p id="isPasted">A crucial element of MACD is the Signal Line, which is typically a 9-period EMA of the MACD Line. This Signal Line acts as a smoothing mechanism, providing a more stable representation of the MACD Line's movements. It highlights potential shifts in the indicator's trend and aids in identifying potential trade entry or exit points.</p><p>Completing the calculation process is the derivation of the Histogram, which represents the difference between the MACD Line and the Signal Line. The Histogram visually portrays the interplay between these lines, effectively signifying the strength and momentum of the trend. When the Histogram is above zero, it suggests bullish momentum, while a Histogram below zero indicates bearish momentum.</p><p>In practice, traders use the MACD indicator for various purposes. Crossovers between the MACD Line and the Signal Line are often interpreted as buy or sell signals, depending on the direction of the crossover. Moreover, the divergence between the MACD and price movements can provide insights into potential trend reversals. The MACD's ability to capture both momentum and trend direction makes it a versatile tool in the trader's toolkit.</p>

<p id="isPasted">MACD Line (Blue): 12-day EMA – 26-day EMA</p><p>Signal Line (Red): 9-day EMA of MACD Line</p><p>Histogram: MACD Line – Signal Line&nbsp;</p><p>The 12-day Exponential Moving Average (EMA) less the 26-day EMA forms the MACD line.</p><p>These moving averages are computed using closing prices. The indicator is shown along with a 9-day EMA of the MACD line to serve as a signal line and detect turns. The MACD Histogram shows the discrepancy between the MACD and the signal line, which is the 9-day EMA. When the MACD line is above its signal line and when it is below its signal line, the histogram is positive.</p><p>The MACD is calculated by deducting the short-term EMA from the long-term EMA (26 periods) (12 periods). An EMA is a sort of moving average (MA) that gives the most recent data points more importance and weight.</p><p>The exponentially weighted moving average is another name for the exponential moving average. In comparison to a simple moving average (SMA), which gives equal weight to all observations across time, an exponentially weighted moving average responds more strongly to recent price movements. This is a primary reason to use EMA before SMA which is a simple moving average.</p>