What Is MACD?
Also known as: Moving Average Convergence Divergence
In short
MACD (Moving Average Convergence Divergence) is a momentum-based technical analysis indicator that tracks the difference between two exponential moving averages to show the direction and strength of a price trend and possible reversal points.
Developed by Gerald Appel, the indicator consists of three components. The MACD line is usually calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The signal line is the 9-period EMA of the MACD line. The histogram shows the difference between these two lines as bars and visualizes momentum increasing and decreasing.
According to common interpretation, the MACD line crossing above the signal line is seen as a bullish signal and crossing below it as a bearish signal. The MACD being above the zero line indicates that the short-term average is higher than the long-term one. Divergences, such as the price making a new high while the MACD forms a lower high, can point to a weakening trend.
Because MACD is derived from past prices, it is a lagging indicator and can often give false signals in sideways markets. For this reason, analysts usually use it together with other tools such as RSI, trading volume or support and resistance levels. No indicator can predict future price movements with certainty.
Last updated: · This content is for information purposes only and is not investment advice.