Is MACD Really a Trend Follower?

T

TriPack

Everywhere I look I see MACD referred to as a trend following indicator. Yet when I logically look at how MACD is formed, I come to the conclusion that it is a momentum indicator and not a trend indicator. As I understand it MACD is the difference between a short MA and a long MA.

The classical momentum indicator (sometimes referred to as ROC) is the difference between the current price and the price of X bars ago. As I figure it, a short average is the equivalent of the current price and a long average is the equivalent of the price X bars ago.

So isn't MACD just a fancy momentum indicator?
 
You make an observation that is not discussed very often, but is very important to understanding the benefits of the MACD.

The MACD is both a momentum indicator, and a trend-following indicator. Because it is derived from moving averages, it is a trend-follower. Because it is also derived from the difference between these averages, it is a momentum indicator, albeit smoothed.

Looking at the MACD as both a trend indicator and momentum indicator is what makes its use so powerful.

Excellent point TriPack!

:)
 
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