"The two lines that are drawn are NOT moving averages of the price. Instead, they are the moving averages of the DIFFERENCE between two moving averages.
In our example above, the faster moving average is the moving average of the difference between the 12 and 26-period moving averages."
Is it possible that the above is wrong? That is, maybe it should read:
"The two lines that are drawn are NOT moving averages of the price.
In our example above, the faster (blue) line is the difference between the 12 and 26-period moving averages."
Yes this is correct! MACD takes into account the Exponential moving averages (EMA) instead of Simple moving averages (SMA). EMA weighs recent prices more than the old ones and this is the best part of MACD.
what are you saying is correct - the original statement made in the course, or the observation above that it may be wrong?
(it is wrong!)
that’s true, but it has absolutely nothing at all to do with the question asked above
this forum is absolutely full of incorrect statements about the MACD indicator
it seems to me that there are 4 main reasons for this:-
there are, unfortunately, (as rightly observed above) some misleading and incorrect statements made about MACD in the site’s education course
every thread of more than a few posts in which MACD is discussed contains some factually incorrect descriptions and/or explanations of MACD, which have usually been left uncorrected
the forum’s full of beginners trying to be kind and helpful in advising other beginners, and understandably they make many mistakes and misunderstand quite a bit
most of the members here use the Metatrader trading platform, which displays the MACD incorrectly, and many people here therefore have a very poor understanding of “what MACD shows and how to use it”, because that’s often where they’ve become familiar with it, and that’s all wrong anyway
let’s see if i can clarify it a bit, in general, first, and then I’ll comment on the specific question asked
general explanation
the MACD indicator displays two lines (not “one line and a histogram” as wrongly shown in Metatrader)
the fast line (also called the “MACD line”) displays the difference between two specified moving averages, without displaying either of the moving averages themselves
the slow line (also confusingly called the “signal line”) is a moving average of the first line - in other words, it’s a moving average of the difference between two other moving averages neither of which is shown
the histogram (if used) is a graphical way of displaying the difference between the fast line and the slow line - in other words it shows the difference between: firstly, the difference between two moving averages neither of which is itself shown, and secondly, a moving average of that difference between two moving averages neither of which is itself shown
the mistake made in the MT platform is that a histogram is shown, but that isn’t what it displays - it’s wrongly used, instead, to display one of the two lines (which is otherwise missing!) - not surprising that that causes plenty of confusion!
so if you need anything described anywhere else in the world, on websites, in courses, in videos, in other forums, or wherever, as “the histogram”, don’t imagine that the one you’re looking at in the MT platform is that histogram - it’s actually something completely different
i hope that helps
to the people who find it very complicated and confusing, i’m sorry about that, but it isn’t my fault: it’s because most of what you’ve been told in the past was mistaken
now let’s answer John Learner’s specific question:-
yes, you’re right - it’s wrong!
specifically, the sentence “they are the moving averages of the DIFFERENCE between two moving averages” is wrong
only one of them (the fast line) is the difference between two moving averages
the other one (the slow line), as explained above, is simply a moving average of the fast line
that’s perfectly true, as far as it goes, but it doesn’t explain what the other line is, so I’d say it’s “true but incomplete”
something else to know about MACD
the “standard settings” are archaic and have absolutely nothing to do with trading forex at all
they date from trading stocks (only) on daily charts (only), from the long-ago days of a 6-day trading week when the stock market was open on Saturdays as well as on weekdays
12 was then the number of trading days in 2 weeks
26 was then the number of trading days in 1 month (a month being 4.3 weeks, on average)
the two moving averages (neither shown itself, as explained above) were designed to display the difference between daily moving averages with 2-weekly and monthly lookback periods - that’s their relevance
Thanks so much for your patient explanations! That thoroughly cleared my understanding. And great to learn that the choosing of 12 and 26 actually is the difference between 2-week and monthly moving averages.
So on the webpage mentioned in the first post, more sentences down the page are also wrong, such as
“The Histogram simply plots the difference between the fast and slow moving average.”
which actually should be
“The Histogram simply plots the difference between the fast and slow MACD lines.”
Is there a place we can report such errors? Just wish that may help future learners here a bit.
not surprising so many people here completely misunderstand the MACD!
not worth it, i’m afraid - people have been “reporting” these things for at least a decade that i’m aware of (see in the “feedback” section) but it doesn’t achieve anything
understood- i thought setting out in detail what i’ve said above might help, in that next time someone asks, i can just post a quick link to this thread, which might clarify the position for beginners
if you’re playing around with MACD, i suggest you also take a look at the modern “French settings” which are 9 and 19 periods for the two (unshown) moving averages, and 6 periods for the moving average of the fast line (in other words 9-19-6 rather than 12-26-9) - i’ve seen 9-19-7 used, too (almost identical)
Ok, thanks. I’m just taking the School of Pipsology and just entered “Middle School” I did browsed these concepts somewhere else but found some hard to understand, so came here and found that School sometimes easy to understand. So it’s a pity it has these errors, actually there are more.
I have not opened test account yet, certainly plan to play with these settings etc later.
It’s great that you’re confirming the doubts from different sources and in fact taking it so seriously. As far as info on this portal’s tutorials is concerned, I hardly think there can be an error. Saying this so confidently, coz I’ve been a patron who started the trading journey here and got a pretty good idea about how things work around.
@JohnLearner: Letting you know that we do read these Most of them get sent to [email protected] and we look into them and make changes as needed! Spotted some typos in the lesson and the team is also now looking into explaining this better, will post back once we have that! Thanks for posting here, we appreciate it!
Hi @Ananais, thanks so much for all you guys/girls kind help! I can attest that that MACD page is now correct to my understanding and, easy to understand now. Great appreciation to all those who maintain such an amazing environment.
I did browsed these concepts somewhere else but found some hard to understand, so came here and found that School sometimes easy to understand. So it’s a pity it has these errors, actually there are more.