MACDMACD
MACD (Moving Average Convergence Divergence) tracks the gap between two exponential moving averages to show changes in a trend's momentum.
MACD takes two moving averages — a fast one and a slow one — and plots the distance between them.1 When the fast average pulls away above the slow one, upward momentum is building; when the gap narrows, it is fading. A second line and a histogram turn that into signals. MACD is one of the most popular indicators because it combines trend and momentum in one panel, but it inherits the lag of the averages it is made from.
- Category
- Indicators and Tools
- Reading time
- 6 min
- Also called
- Moving Average Convergence Divergence, MACD line, Signal line
- Updated
MACD in plain words
Imagine two runners on the same track: a sprinter (the 12-period EMA) and a steady jogger (the 26-period EMA). When the price speeds up, the sprinter pulls ahead and the gap between them grows. When the price slows, the sprinter falls back towards the jogger. MACD is that gap.2
A third line, the signal line, is a 9-period average of the MACD itself. When MACD crosses above it, momentum is turning up; when it crosses below, momentum is turning down.2
How to build and read MACD, step by step
Calculate the MACD line
Subtract the 26-period EMA from the 12-period EMA. Positive means the fast average is above the slow one.2 See Moving Average.
Add the signal line
Take a 9-period EMA of the MACD line.2
Plot the histogram
The histogram is MACD minus the signal line. Growing bars mean momentum is accelerating; shrinking bars mean it is slowing.
Read the zero line
MACD crossing above zero is considered bullish and below zero bearish — it means the fast average has crossed the slow one.2
Read the signal-line crosses
MACD crossing above the signal line is considered bullish, and below it bearish.2
Check the market type
In trading ranges MACD whipsaws back and forth across the signal line; many users avoid its signals there.2
Worked examples
Example 1 — Reading one day’s values
BullishA stock’s 12-day EMA is $52.40 and its 26-day EMA is $51.10. The signal line (9-day EMA of MACD) is 1.05.
| MACD = 12 EMA − 26 EMA | $52.40 − $51.10 = 1.30 |
| Histogram = MACD − signal | 1.30 − 1.05 = +0.25 |
| Reading | Above zero and above the signal line |
The fast average is above the slow one and MACD is above its signal: upward momentum, for now.
Example 2 — Momentum fading before the cross
FadingOver the next three days MACD goes 1.30 → 1.22 → 1.15 while the signal line goes 1.05 → 1.08 → 1.10.
| Histogram | +0.25 → +0.14 → +0.05 |
| Price | Still rising slightly |
| Reading | Momentum slowing; a bearish cross is close |
The shrinking histogram warned before the lines actually crossed. Some traders tighten stops at this stage rather than waiting for the cross.
Example 3 — Whipsaw in a range
WhipsawA stock trades sideways between $48 and $52 for six weeks. MACD crosses its signal line six times. A trader takes every cross, losing about $0.70 a share on four trades and making $0.90 on two.
| Losses | 4 × −$0.70 = −$2.80 |
| Gains | 2 × +$0.90 = +$1.80 |
| Net per share | −$1.00 |
MACD is a trend tool. In ranges its crosses come late and reverse quickly, which is why many traders ignore them there.2
Price with MACD, signal line and histogram
MACD signals at a glance
| Aspect | Usually read as | Watch out for |
|---|---|---|
| MACD crosses above signal | Momentum turning up2 | Late in fast moves; whipsaws in ranges |
| MACD crosses below signal | Momentum turning down2 | Same |
| MACD crosses above zero | Fast EMA above slow EMA — uptrend2 | Arrives well after the turn |
| Histogram shrinking | Momentum slowing | Not a reversal by itself |
| Divergence with price | Move losing strength | Stronger when it confirms a crossover2 |
How traders use MACD
Trend confirmation
MACD above zero supports long trades in an uptrend; below zero supports shorts in a downtrend. See Trend.
Timing entries
Some traders wait for a signal-line cross in the direction of the larger trend after a pullback.
Early warning
A shrinking histogram or a divergence can prompt tighter stops or partial profits. See Divergence.
Comparing momentum
Unlike the RSI, MACD has no fixed range, so it measures direction and acceleration rather than “overbought”.
Advantages and disadvantages
Advantages
- Combines trend direction and momentum in one panel.
- Clear, rule-based signals.
- The histogram shows changes in momentum before the lines cross.
Going deeper
Read as far as you need. Each level builds on the one before it.
Three parts, one idea
Beginner
The MACD line, the signal line and the histogram all describe the same thing — the gap between a fast and a slow average — at different levels of smoothing.
Settings
Intermediate
12, 26 and 9 are the defaults and can be adjusted.2 Shorter settings react faster with more false signals; longer ones are smoother and later. On weekly charts many traders keep the defaults; intraday traders sometimes shorten them.
Why MACD has no fixed scale
Advanced
Because MACD is a difference in price, a $500 stock produces much larger values than a $20 stock with the same percentage moves. A percentage version (the percentage price oscillator, PPO) divides by the slow EMA so that values can be compared across assets and over long periods when price has changed a lot.
Common mistakes
Taking every crossover
In ranges most crosses are noise. Check the trend and the market type first.
Treating MACD as overbought or oversold
MACD has no bounds; a high value only means a strong trend so far.
Comparing values between stocks
MACD is in price units. Compare an asset only with its own MACD history.
Forgetting the lag
By the time MACD crosses zero, much of the move has often happened.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- MACD = 12-period EMA − 26-period EMA; the signal line is a 9-period EMA of MACD.
- The histogram (MACD − signal) shows whether momentum is speeding up or slowing down.
- Crosses above the signal line or zero are read as bullish; below as bearish.
- MACD works in trends and whipsaws in ranges.
- It has no fixed scale and is not an overbought/oversold tool.
Frequently asked questions
What are the best MACD settings?
Is MACD a leading or lagging indicator?
What is the difference between MACD and RSI?
Further learning
- Moving Average
The building block MACD is made from.
- Relative Strength Index
A bounded momentum indicator to compare with MACD.
- Trend
MACD is a trend tool; know the trend first.
- Breakout
Momentum often expands after a range breaks.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. MACD (Moving Average Convergence/Divergence Oscillator) (opens in a new tab) Checked .
- Fidelity. MACD (Moving Average Convergence/Divergence) (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): MACD (opens in a new tab)
- Investopedia: MACD (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.