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MACD

MACD is a technical indicator that tracks the difference between two exponential moving averages to show trend direction and momentum. MACD (Moving Average Convergence Divergence) was developed by Gerald Appel.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • It watches how short and long exponential averages converge and diverge in order to catch trend changes early.
  • MACD crossing above the signal line is taken as a buy signal, crossing below as a sell signal.
  • because it rests on moving averages it lags and produces false signals in sideways markets.

Formula / calculation

MACD line = 12-day EMA − 26-day EMA; Signal line = 9-day EMA of MACD; Histogram = MACD − Signal. The 12-26-9 parameters are standard but adjustable.

Interpretation

MACD crossing above the signal line is taken as a buy signal, crossing below as a sell signal. Being above zero shows bullish momentum, below zero bearish. Divergences between price and MACD point to a weakening trend.

Pitfalls

because it rests on moving averages it lags and produces false signals in sideways markets. Its absolute value depends on the price level, so it cannot be compared across stocks. Confirm with RSI, volume and support/resistance.

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Frequently asked questions

MACD is a technical indicator that tracks the difference between two exponential moving averages to show trend direction and momentum.

MACD line = 12-day EMA − 26-day EMA; Signal line = 9-day EMA of MACD; Histogram = MACD − Signal. The 12-26-9 parameters are standard but adjustable.

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