Divergence of Moving Average Convergence Divergence (MACD) is a technical analysis indicator that shows the relationship between two moving averages of an asset’s price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-period EMA of the MACD is then plotted as a signal line. When the MACD crosses above the signal line, it is seen as a bullish signal, while a cross below the signal line is seen as a bearish signal.
Divergence of the MACD occurs when the MACD line moves in the opposite direction of the asset’s price. This can indicate a potential trend reversal or a change in the momentum of the current trend. A bullish divergence occurs when the price makes a lower low while the MACD makes a higher low, suggesting that the selling pressure may be weakening. Conversely, a bearish divergence occurs when the price makes a higher high while the MACD makes a lower high, suggesting that the buying pressure may be weakening. Traders and analysts often use the MACD and its divergences as part of their trading strategies to help identify potential entry and exit points.