What is MACD? The moving average convergence divergence indicator
By SendPay Business · · 2 min read
MACD, short for moving average convergence divergence, is a chart indicator developed by Gerald Appel in the late 1970s. It compares a fast and a slow moving average to show how a price's momentum is changing.
The three parts
- MACD line: the 12-period exponential moving average (EMA) minus the 26-period EMA.
- Signal line: a 9-period EMA of the MACD line.
- Histogram: the MACD line minus the signal line, drawn as bars.
Reading it
When the MACD line is above zero, the fast average is above the slow one, which usually means prices have been rising. The histogram grows when the gap between MACD and its signal line widens and shrinks as they converge, which is where the name comes from.
Crossovers
Some chart readers watch for the MACD line crossing above or below its signal line, or crossing zero. Because both lines are built from moving averages, these crossings come after the price has already turned.
The limits
MACD lags the price and can give many false signals in a sideways market. It has no fixed top or bottom, so readings can't be compared directly between markets with very different prices.
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