MACD (Moving Average Convergence Divergence) is the difference between a 12-period and a 26-period exponential moving average, plotted with a 9-period signal line and a histogram showing the gap between the two.
Three ways to read it
- Zero line: MACD above zero means the short-term average is above the long-term one, a bullish bias.
- Crossovers: MACD crossing above its signal line suggests momentum turning up.
- Histogram: shrinking bars show momentum fading before a crossover happens.
Signals worth using
- Crossovers in the direction of the higher-timeframe trend, especially near the zero line after a pullback.
- Divergence between price and MACD at key levels, confirmed by price structure.
Its weakness
MACD is built from moving averages, so it lags. Crossovers often arrive after much of the move has happened, and in ranges they whipsaw constantly. Use it as confirmation, not as the trigger.