The Moving Average Convergence / Divergence (MACD) is a momentum indicator that describes the relationship between short-term and long-term trend components.
Rather than forecasting price, MACD helps visualize momentum shifts, trend acceleration, and deceleration.
What MACD represents
MACD measures the distance between two moving averages of price.
It answers:
- Is short-term momentum strengthening or weakening relative to longer-term trend?
- Is momentum accelerating or fading?
MACD is a rate-of-change indicator, not a directional predictor.
How MACD is constructed (conceptually)
MACD consists of three elements:
- MACD line
Difference between a fast EMA and a slow EMA - Signal line
EMA of the MACD line - Histogram
Difference between the MACD line and the signal line
The standard parameters (12, 26, 9) are conventions, not rules.
Reading the MACD line
The MACD line reflects relative momentum.
- Above zero → short-term trend is stronger than long-term trend
- Below zero → short-term trend is weaker than long-term trend
The zero line often acts as a trend regime boundary.
Understanding the histogram
The histogram shows the rate of change in momentum.
- Expanding bars → momentum accelerating
- Contracting bars → momentum decelerating
- Color or direction change → momentum shift
Histogram contraction often precedes trend pauses or transitions.
MACD crossovers in context
Crossovers describe when momentum shifts relative to its recent average.
