Moving Average Convergence Divergence — a momentum indicator that shows the relationship between two exponential moving averages, used to identify trend direction, momentum, and potential reversals.
MACD is calculated by subtracting the 26-period EMA from the 12-period EMA. The result is the MACD line. A 9-period EMA of the MACD line — called the signal line — is plotted alongside it. The difference between the MACD line and the signal line is typically shown as a histogram. When the MACD line crosses above the signal line it is a bullish signal; crossing below is bearish.
MACD captures several types of information simultaneously: the MACD line's position above or below zero indicates whether the shorter-term trend is above or below the longer-term trend (above zero is bullish, below bearish). The distance between the lines shows momentum strength. Divergences — where price makes new highs or lows but MACD does not — are considered potential warning signals that the trend is losing momentum.
Like all indicators, MACD produces false signals in choppy or sideways markets. It works best when applied to trending markets where the moving average components can distinguish real trends from noise. MACD is widely used across all time frames from intraday charts to monthly charts, and is one of the most commonly included indicators on retail charting platforms.
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