Technical

Moving Average Convergence Divergence (MACD)

A momentum indicator showing the relationship between two EMAs, used to identify trend direction and strength.

Definition

The MACD is a trend-following momentum indicator developed by Gerald Appel in the late 1970s. It shows the relationship between two exponential moving averages, typically the 12-period and 26-period EMAs. The MACD line is calculated by subtracting the 26 EMA from the 12 EMA, with a 9-period EMA signal line plotted on top. Traders use crossovers, histogram readings, and divergences to identify trend changes.

How It Works

MACD line = 12-period EMA minus 26-period EMA. Positive MACD = bullish momentum.
Signal line crossovers: MACD crossing above signal = buy; crossing below = sell
Histogram shows the gap between MACD and signal line; growing bars = strengthening momentum
Zero line crossings confirm trend direction. Above zero = bullish, below = bearish.
Divergence: price makes a new high but MACD does not = bearish warning, and vice versa

Trading Tips

MACD divergence is one of the most reliable reversal signals in technical analysis

Default settings (12, 26, 9) work well on daily charts. Use shorter settings for intraday.

MACD is a lagging indicator. Combine with leading indicators like RSI for earlier signals.

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