SMA MACD Analysis

About MACD

MACD could be based on Simple Moving Averages (SMA). There is no restrictions on what kind of moving averages (MA) or what combination of moving average has to be used in MACD calculations.

The MACD could be considered as one of the most used in technical analysis. It is based on Fast Moving Average (MA with lower bar period) and Slow MA (MA with larger bar period). To understand MACD you have to understand Moving Averages:

• MA represents price trend. Fats MA represent shorter-term trend and Slow MA represents longer-term trend.
• By calculating MACD (subtracting Fast MA from Slow MA), you define a location of the Fast MA in relation to Slow MA.
• Fast MA above Slow MA (positive MACD) defines bullish trend and Fast MA below Slow MA (negative MACD) defines bearish trend.

Technical analysis suggests that bullish trend is established when MACD moves above zero and bearish rend is established when MACD turns negative.

Therefore a simple trading system based on MACD would suggest:

• Buy when MACD Histogram turns positive (see red readings in the table below);
• Sell when MACD Histogram turns negative (see green readings in the table below).