Moving Average Convergence Divergence (MACD) is a popular trend-following momentum indicator. The MACD turns two trend-following indicators, moving averages, 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 buy or sell signals can be obtained when a 9 day EMA called the “signal line” is plotted on top of the MACD. Traders typically use the MACD as a simple crossover, so when MACD crosses the signal line, they tend to buy or sell based on which way the cross 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 by 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 Macys. We will explore it by using Excel VBA so you have all the required tools to get started. The spreadsheet with the accompanied VBA is available for download at the bottom of the page.
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 example, the parameters are M (Stock Symbol 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 example, we will discuss computing MACD using 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 capture, 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 illustrated using this screen capture.
The same equation holds true for calculating 26 day trailing average, with period being 26 in this case. Column D illustrates 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 given by the above formula.
4) MACD is the difference between 12-day EMA and 26-day EMA as depicted 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 the 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.
Find more at investsolver.com