TrendBeginner

MACD

Moving Average Convergence Divergence

MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages of a stock's price. Created by Gerald Appel, it is excellent for identifying trend direction, momentum shifts, and potential entry/exit points.

How It Works

MACD subtracts the 26-period EMA from the 12-period EMA to create the MACD line. A 9-period EMA of the MACD line is then plotted as the signal line. The histogram shows the difference between MACD and its signal line.

Formula

MACD Line     = EMA(12) - EMA(26)
Signal Line   = EMA(9) of MACD Line
Histogram     = MACD Line - Signal Line

Signal Interpretation

Bullish Crossover

MACD line crosses above the signal line — indicates bullish momentum building.

Bearish Crossover

MACD line crosses below the signal line — indicates bearish momentum building.

Zero Line Cross

MACD crossing above zero means the short-term EMA is above the long-term EMA — a bullish sign.

Histogram Divergence

Shrinking histogram bars signal momentum is fading — watch for crossover.

Use Cases

▸Identifying the beginning of new trends
▸Finding momentum shifts in existing trends
▸Spotting potential reversals via divergence
▸Combining with RSI for entry confirmation

Limitations

⚠Lagging indicator — based on past prices
⚠False signals during sideways/ranging markets
⚠Crossovers can be whipsaw-prone in volatile markets

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BazaarPulse Tip

MACD works best in trending markets. Use the daily timeframe for swing trades and combine with RSI to avoid false signals in choppy markets.

See MACD in Screener All Indicators