Is MACD Really a Trend Follower?

Discussion in 'Technical Analysis' started by TriPack, Oct 6, 2002.

  1. Everywhere I look I see MACD referred to as a trend following indicator. Yet when I logically look at how MACD is formed, I come to the conclusion that it is a momentum indicator and not a trend indicator. As I understand it MACD is the difference between a short MA and a long MA.

    The classical momentum indicator (sometimes referred to as ROC) is the difference between the current price and the price of X bars ago. As I figure it, a short average is the equivalent of the current price and a long average is the equivalent of the price X bars ago.

    So isn't MACD just a fancy momentum indicator?
  2. You make an observation that is not discussed very often, but is very important to understanding the benefits of the MACD.

    The MACD is both a momentum indicator, and a trend-following indicator. Because it is derived from moving averages, it is a trend-follower. Because it is also derived from the difference between these averages, it is a momentum indicator, albeit smoothed.

    Looking at the MACD as both a trend indicator and momentum indicator is what makes its use so powerful.

    Excellent point TriPack!

  3. clarkie


    What does MACD stand for?
  4. Moving Average Convergence Divergence