MACD
A momentum indicator built from the difference between two exponential moving averages.
Also called: moving average convergence divergence
In plain language
MACD subtracts a longer EMA from a shorter one — classically 26 and 12 periods. A signal line, usually a 9-period EMA of that result, is plotted on top.
The histogram shows the gap between the MACD line and its signal line. It expands when momentum is accelerating and contracts when the move is tiring.
Because it is built entirely from moving averages, MACD inherits their lag. It confirms moves rather than anticipating them.
The formula
MACD Line
12-period EMA − 26-period EMA
- Signal line
- 9-period EMA of the MACD line
- Histogram
- MACD line − Signal line
Why it matters
MACD offers a structured read on whether momentum is building or fading, which is useful for deciding whether to hold a trend trade or tighten the trail.
Common mistakes
- Trading every crossover regardless of trend context.
- Using MACD in a sideways market, where it produces near-continuous false signals.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A moving average that weights recent prices more heavily than older ones.
When price makes a new extreme but the indicator does not, suggesting momentum is fading.
A momentum oscillator from 0 to 100 that compares the size of recent gains to recent losses.
A sustained directional bias in price, built from a repeating pattern of highs and lows.
The average price over a set number of periods, recalculated as each new period closes.