What is MACD?
In short
The difference between the 12- and 26-period EMAs plus a 9-period signal line. Crossovers indicate shifts in momentum.
MACD (Moving Average Convergence Divergence) is an indicator that shows trend and momentum through the difference between two EMAs. It has three parts:
- MACD line = EMA(12) − EMA(26).
- Signal line = a 9-period EMA of the MACD line.
- Histogram = MACD line − Signal line.
How to read it
- MACD above zero — the short EMA is above the long EMA, so short-term momentum is to the upside.
- MACD crossing the signal line from below — a bullish crossover; from above — bearish.
- The histogram shows momentum shifts even before a crossover: shrinking bars mean the move is slowing.
- Divergence: price makes a new high but MACD doesn't — a warning, just as with the RSI.
Strength
MACD combines trend direction (relative to the zero line) and momentum (crossovers, histogram) in one panel. That is why it is one of the most popular indicators.
Limitations
MACD is built from EMAs, so it also lags: a crossover often arrives after part of the move has already happened. In sideways markets MACD oscillates around zero and produces many false crossovers. MACD values depend on price (they are in dollars), so you can't compare MACD values across different stocks directly.
MACD = EMA 12 (blue) − EMA 26 (amber). First MACD crossed above its signal line (price $84.20) — the earliest but least reliable hint. Later EMA 12 crossed above EMA 26 ($86.55 > $86.44), i.e. MACD turned positive (price $89). Stronger confirmation, but later.
Example
Illustrative case, daily chart:
Day 1:
- EMA(12) = $101.50, EMA(26) = $100.00 → MACD = 1.50.
- Signal line = 1.20 → Histogram = 1.50 − 1.20 = +0.30.
MACD is above the signal line and above zero — upward momentum.
A few days later:
- MACD = 1.10, Signal = 1.25 → Histogram = 1.10 − 1.25 = −0.15.
MACD has crossed below the signal line — a bearish crossover. But MACD is still above zero: the longer-term uptrend isn't broken, only short-term momentum has slowed. That is often a sign of a pullback rather than a reversal.
Mistakes and tips
Judge a crossover relative to the zero line: a bullish crossover above zero is usually more reliable than one below it.
Don't rely on MACD crossovers in sideways markets — they produce strings of false signals.
Don't use MACD alone: confirm it with levels and price action.
Frequently asked questions
- Is a MACD crossover a buy signal?
- It shows a shift in momentum, but it isn't a complete signal by itself. Most traders combine it with the trend direction and key levels.
- What are the standard MACD settings?
- The most common are 12, 26 and 9. Some traders experiment with other values, but the standard settings are the most widely watched.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Volume and core indicatorsVolume and relative volume, RSI in trends and ranges, MACD, VWAP and moving averages — when each one helps and when it misleads.Open lesson · 11 min
- Divergence: when price and momentum disagreeRegular and hidden divergence, RSI and MACD, drawing it correctly swing to swing, waiting for confirmation, and the cases where divergence fails.Open lesson · 12 min
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