What is MACD?
MACD (Moving Average Convergence Divergence) shows the relationship between two moving averages. When the MACD line crosses above zero, it's bullish. Below zero is bearish.
Think of it like this
Like two runners on a track - one fast (12-day average), one slow (26-day average). When the fast runner pulls ahead, momentum is building. The distance between them is the MACD!
Formula
MACD = 12-day EMA - 26-day EMA- 12-day EMA: Fast exponential moving average
- 26-day EMA: Slow exponential moving average
- Signal Line: 9-day EMA of MACD
Why it matters
- Shows trend direction and momentum
- Crossovers provide buy/sell signals
- Divergence warns of potential reversals
- Works in trending markets
What's a good value?
MACD > 0
Bullish
Upward momentum
MACD < 0
Bearish
Downward momentum
Cross Above Signal
Buy Signal
Momentum accelerating
Cross Below Signal
Sell Signal
Momentum decelerating
Real-world example
Apple MACD crosses above signal line while both are below zero - early bullish signal. Later, MACD crosses above zero - confirmed uptrend.
Things to watch out for
- Lags behind price action
- False signals in choppy markets
- Less effective in ranging markets
- Use with other indicators for confirmation
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