Each line is an exponential moving average.

• The fast line results from the difference between the long- and short-term moving averages. To be more precise, the 26-day EMA of the closing price (the long-term moving average) subtracted from the 12-day EMA of the closing price (the short-term) gives you the calculation for the fast line.

• The slow signal is a moving average of the fast line. You derive the slow signal by calculating the 9-day EMA of the fast line.

The centerline is the key! Where a crossover happens in relation to the centerline can offer a strong indication of where that stock is headed.

• When the red fast line crosses over the blue slow signal above the centerline, that is a good indication of a bullish trend. The higher above the centerline the lines cross, the stronger the trend acts.

• When the blue line crosses over the red above the centerline, it does not necessarily mean that there is a big downtrend looming in the distance. It can also signify a pause in the current uptrend. The stock could be taking a breather before it lifts off again.

  This happens often. Some graphs to study are AOL, C, and CSCO.

• If the red line crosses over the blue line below the centerline, it can mean that the downtrend is stopping out (or pausing), or it could be that things are turning around and the stock is heading for an uptrend. However, because the crossover happened below the centerline, the trend probably won't be too strong. In cases like that, the graph doesn't get marked with a green trending bar until the lines have moved up over the centerline -- and then only if the other indicators are positive as well.

• The blue line crossing over the red below the centerline is a good sign of the beginning of a downtrend. Keep in mind that the farther below the centerline the crossover takes place, the stronger the trend!