Free Trading School · Level 7: Technical Indicators
MACD
The MACD (Moving Average Convergence Divergence) is the difference between a 12-period and a 26-period EMA. A 9-period EMA of that line, the signal line, is drawn alongside it, and the gap between the two is shown as a histogram.
- MACD above zero: the short-term average is above the long-term one, so momentum is up.
- MACD crossing above its signal line: momentum is accelerating upward.
- Histogram shrinking: momentum is fading, even if price is still rising.
Because it is built from moving averages, MACD is a trend-momentum tool. It is excellent for confirming that a trend is gaining strength and poor at picking exact tops and bottoms.
MACD tells you about the speed of the trend. Combine it with price levels to decide where to enter.
Quick answers
The MACD (Moving Average Convergence Divergence) is the difference between a 12-period and a 26-period EMA. A 9-period EMA of that line, the signal line, is drawn alongside it, and the gap between the two is shown as a histogram.
MACD tells you about the speed of the trend. Combine it with price levels to decide where to enter.
Momentum is fading. The gap between MACD and its signal is narrowing, so momentum is slowing.
Next lesson: Volatility tools: Bollinger Bands and ATR