What Is MACD (Moving Average Convergence Divergence)?
MACD subtracts a slower exponential moving average (typically 26-period EMA) from a faster one (12-period EMA), producing the MACD line. A signal line — usually a 9-period EMA of the MACD line — is plotted alongside, with crossovers between the two used as buy/sell triggers.
MACD is best understood as a smoothed trend indicator wearing momentum oscillator clothing. When the MACD line is rising and above zero, the asset is in a positive trend with accelerating momentum. When it's falling and below zero, the opposite. The histogram (MACD line minus signal line) visualises the gap.
The canonical signals are the signal-line crossover (cross up = buy) and zero-line cross. Both are lagging — by the time MACD crosses, the easy move is often already done. MACD divergence at extremes is generally more reliable than crossovers as a turning-point signal.
Related terms
- RSI (Relative Strength Index) — A momentum oscillator (0-100) measuring the speed and magnitude of recent price changes.
- EMA (Exponential Moving Average) — Moving average that gives more weight to recent prices, reacting faster than a simple average.
- Divergence (Bullish / Bearish) — When price makes a new high or low but a momentum indicator does not — signal of weakening trend.