Moving Average Convergence Divergence

MACD, developed by Gerald Appel in the late 1970s, is a hybrid indicator that captures both trend and momentum. It is built from three components: the MACD line (the difference between a fast and a slow EMA), a signal line (an EMA of the MACD line itself), and a histogram (MACD minus signal).

Because it combines two distinct moving averages, MACD reflects how quickly the short-term trend is diverging from the longer-term trend. When the fast EMA pulls away from the slow EMA, momentum is increasing in that direction. When the two converge, momentum is fading.

Three numbers parameterize MACD: fast period (default 12), slow period (default 26), and signal period (default 9).

1. MACD line = EMA(close, fast) − EMA(close, slow) 2. Signal line = EMA(MACD line, signal) 3. Histogram = MACD line − Signal line

The histogram is what most charts visualize as bars above/below a zero line. Positive bars mean MACD is above signal (bullish momentum). Bars growing larger means momentum is accelerating.

MACD generates several distinct signals:

Signal line crossover. When the MACD line crosses above the signal line, it is conventionally bullish; below is bearish. This is the most-cited MACD signal but also the most prone to false triggers in choppy markets.

Zero line crossover. When the MACD line itself crosses above zero, the fast EMA has overtaken the slow EMA — a trend-shift signal. Below zero is the symmetric bearish signal.

Divergence. As with RSI, when price makes a new extreme but MACD does not, the underlying momentum is weakening. Bullish: lower low in price, higher low in MACD. Bearish: higher high in price, lower high in MACD.

Histogram expansion / contraction. A growing histogram (in either direction) signals accelerating momentum. A shrinking histogram, even before a signal-line cross, often precedes a momentum reversal.