From The Free Forex Encyclopedia
Moving Average Convergence/Divergence, an indicator used in technical analysis that was invented in the 1970s as a means of showing the differences between both the fast and slow EMAs (Exponential Moving Average) of closing prices, although since 1986 the graph has been produced as a histogram.
The moving average as expressed by the MACD is essentially the average of a price over a certain set amount of time and the MACD enables easy demonstration of the relationship between two exponential examples of the moving average.
Generally, a fast EMA would be considered one within a time frame of twelve days, whereas a slow EMA would represent a twenty-six day period.
The formula: MACD=EMA of price - EMA of price with a signal line of EMA then plotted over the top of this MACD result, allowing as a trigger point for interpretation of buy and sell signals.
Generally, it is considered that when the MACD falls below the signal line it can be regarded as bearish and may well indicate a time to sell, whereas when the MACD rises above the signal line indicating a bullish trend which may indicate an upward trend in price.