Stock Market · Technical Analysis

MACD

What is MACD?

MACD (Moving Average Convergence Divergence) is both a trend-following AND momentum indicator. It shows the relationship between two EMAs and whether that relationship is strengthening or weakening.

Developed by Gerald Appel in the late 1970s. One of the most versatile indicators in existence.

The three components

1. MACD Line = 12-day EMA minus 26-day EMA

2. Signal Line = 9-day EMA of the MACD line

3. Histogram = MACD Line minus Signal Line (shown as bars)

> When the 12 EMA is above the 26 EMA, MACD is positive. Short-term momentum beats long-term (bullish). When negative, bearish.

MACD crossover signals

• Bullish: MACD line crosses ABOVE the signal line → buy signal
• Bearish: MACD line crosses BELOW the signal line → sell signal

These crossovers are the primary way traders use MACD for entries/exits.

The histogram

The histogram bars show the gap between the MACD line and signal line.

• Growing bars = momentum is accelerating
• Shrinking bars = momentum is fading (potential reversal ahead)

Zero line crossovers

When the MACD line crosses above zero, the 12 EMA has crossed above the 26 EMA. A medium-term bullish signal. Below zero = bearish.

12 / 26 / 9the three standard MACD settings used by default on all platforms

MACD divergence

Like RSI, MACD divergence is powerful: if price makes new highs but MACD histogram peaks are declining, momentum is weakening. Reversal risk is elevated.

Takeaway. MACD = 12 EMA minus 26 EMA. Crossover above signal line = buy; below = sell. Shrinking histogram = fading momentum.