Moving Average Convergence Divergence (MACD)
MACD is a popular trend-following momentum indicator. The MACD turns two trend-following indicators into a momentum oscillator by subtracting the longer moving average from the shorter moving average. MACD is calculated by taking difference between 12 day Exponential Moving Average (EMA) and 26 day EMA. A positive MACD means the 12-period EMA is above the 26-period EMA. This post guides you to calculate MACD in Excel.
A trigger for a buy or sell signal occurs when 9 day EMA called the “signal line” is plotted over MACD. Traders typically use the MACD as a simple crossover. When a MACD crosses the signal line, traders tend to buy or sell based on which way the crossover appears. When MACD turns up and crosses over the signal line, bullish crossover occurs. Bearish crossover occurs when MACD turns down below the signal line. The difference between those two values can be plotted through a Histogram.
MACD line = 12 day EMA Minus 26 day EMA
Signal line = 9 day EMA of MACD line
MACD Histogram = MACD line Minus Signal line
The following are the steps to calculate the MACD of Macy’s. We will explore it by using Excel VBA so you have all the necessary tools to get started. The spreadsheet with the accompanied VBA is available for download.
1) Get the historical closing stock prices. The accompanied VBA in the spreadsheet does it for you. Simply key in the Stock Symbol, Begin and End dates. In this demo, M was ticker for Macy’s, Start Date as Jul-01-2014, and End Date as Sep-30-2104.
2) EMA of the closing stock prices
There are two common setups for the MACD. The first is based on calculations using three-time periods : a 12-day, 26-day, and a 9-day time frames. The second is based on calculations using three different time frames: 8-day, 17-day, and a 9-day time frames. The time frames are basically trailing day averages. The MACD for the longer time frame is less volatile as compared to the MACD for shorter time frames. In this demo, MACD is calculated through 12-26-9 trailing day averages.
Calculate MACD in Excel
The equation for calculating a trailing 12-day average is
where the Period is 12. From the Excel screen grab, columns A and B contain date and closing stock prices. Column C contains 12 day EMA. Cell C13 contains trailing 12-day average. Cells C17 onward contains EMA values based on the above equation. Notice that the EMA is a function of previous day’s EMA and today’s closing price. The calculations are shown from the screen grab.
The same formula holds true for 26 day trailing average, with period being 26 trading days. Column D shows the calculations behind 26-day EMA. The first value or cell D27 is average of the past 26 day’s closing prices, while cells D28 onward are in the formula above.
4) MACD is the difference between 12-day EMA and 26-day EMA as shown in column F.
A 9-day EMA of the MACD which is often called the “signal line”, is then plotted on top of the MACD. This serves as the trigger for buy and sell signals. The equation for calculating Signal Line is:
where Period is 9.
The chart below is the plot of 12 and 26 day EMA for Macy’s. MACD is about convergence and divergence of two moving averages. As you can see below that the shorter moving average (12-day) is faster and drives the overall MACD movement. The longer moving average (26-day) is less reactive to stock price changes.
Trading models that were designed earlier using Yahoo! Finance API have been rewritten to retrieve quotes from Bloomberg Open Markets. At this time only US stocks and ETFs can be retrieved from the MACD model. See setup instructions
Under Developer->Visual Basic->Tools->References, add the highlighted objects.