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I've heard that when the two lines of a MACD are very close together, the price is extremely volatile while when they are far apart the price is not very volatile.
To me it makes sense that if they were closer it would be far less volatile because the two moving averages are more consistent, and in the case that they are farther apart it would be far more volatile as the moving averages are very different.
If someone could please explain that would be great :)
MACD stands for Moving Average Convergence Divergence. Appel's MACD indicator is comprised of the difference between a 12 and a 26 period exponential moving average (EMA) and it is plotted along with a 9 period EMA.
I've heard that when the two lines of a MACD are very close together, the price is extremely volatile while when they are far apart the price is not very volatile.
This statement is incorrect. The shorter the moving average, the more responsive it is to change in price and the longer the moving average, the less responsive it is to change in price. Therefore, in trending periods, the shorter EMA gets further away from the longer EMA and the lines "diverge". In non trending periods, the two averages get closer together and they "converge".
