MACD......Another Popular Indicator in the Colombo Bourse

Indicators and Oscillators have an important relationship with Technicians World over. One of the most talked about and always used Indicators by millions of Traders is called the MACD indicator. If you break down the make up of this indicator you will notice that it is helping you to BUY and SELL an instrument, based on Exponential Moving Averages.
When Gerald Appel invented this indicator, he used the 26 day EMA, 12 day EMA and the 9 day EMA. What he did was that the 26 EMA was subtracted from the 12 EMA and the result was called the MACD line. The 9 EMA was positioned to be the signal line. Hence in this indicator you have the MACD line and the Signal line.
For Technicians and who ever interested in the MACD, only need to understand the movements of these 2 lines. The time to Buy will be when the MACD line rises above the Signal line, whilst you sell when the MACD falls below the Signal line. If you understand this that's all you need.

Apart from the Lines, we also monitor the movements of the lines through the MACD histogram in the same Chart. Histograms are little vertical or Straight Bars that rises or decline above or below a horizontal zero line.

When the MACD line rises above the Signal line the histogram bars move over zero until the MACD line falls below the Signal line, at which point the histogram bars fall below the Zero line. As the MACD line move and expand above or below the Signal Line, Histogram Bars will grow larger. When the MACD line move closer to the Signal line then the Histogram Bars become smaller. This is given in the chart below.

 Another advantage in the histogram is the expansion or the narrowing happens during the interim period. This is useful to find the higher lows and lower highs within the trend both up or down. The Chart below shows how the histogram start rising before the MACD line rises above the Zero line, helping the trader to understand the reversal with higher low closes or lower high closes.