The Moving Average Convergence/Divergence, or MACD, is a way of comparing moving averages over the short and the long term.
To work out the MACD calculate a short term moving average and a long term moving average, using the techniques we have already discussed. Then, plot these as lines, along with the market or index closing prices, on a line graph. Calculate the difference between the two moving averages and plot this on the chart too. This is known as the oscillator.
With this technique, not only can the way the oscillator line moves above or below the closing price line indicate whether the market is rising or falling, but the distance is thought to indicate how strong the trend is.