Trading term

What is MACD?

MACD (Moving Average Convergence Divergence) is a momentum indicator built from two moving averages. It plots the gap between a fast and a slow average as the MACD line, adds a smoothed 'signal' line, and shows the difference between them as a histogram — flagging shifts in trend strength and direction.

MACD takes two exponential moving averages — typically the 12-period and 26-period — and plots the distance between them as the MACD line. When the fast average pulls above the slow one, momentum is building to the upside; when it falls below, to the downside. A 9-period average of the MACD line, the 'signal' line, is overlaid, and the gap between the two is drawn as a histogram of bars around a zero line.

The classic signals: the MACD line crossing above the signal line is bullish, crossing below is bearish, and the histogram flipping from below zero to above (or the MACD line crossing zero) confirms a momentum shift. Like RSI, MACD also shows divergence — when price makes a new extreme the MACD doesn't confirm, the trend may be weakening. It shines in trending markets and whipsaws in flat ones.

MACD: a bullish crossover
PRICEMACD (12, 26, 9)bullish crossover ↑MACDsignal

As the downtrend turns, the MACD line (blue) crosses up through the signal line (amber) and the histogram flips from red to green — a bullish momentum signal.

For example

A stock's MACD line (the 12–26 EMA gap) crosses up through its 9-period signal line while the histogram flips from red to green — a bullish signal that the recent downtrend is turning.

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Why it matters to you

MACD compresses trend direction, momentum and crossovers into one panel, which is why it's on nearly every trader's chart. Where a moving average tells you the trend, MACD tells you whether that trend is accelerating or fading — the timing edge that helps you enter as momentum turns rather than after it's obvious.

⚠ It whipsaws in a range

MACD is a trend tool. In a sideways, choppy market the two lines cross back and forth constantly, firing false signal after false signal. Applying MACD crossovers in a flat range is a classic way to get chopped up — confirm there's an actual trend first.

Frequently asked questions

What do the MACD line and signal line mean?

The MACD line is the gap between a fast (12-period) and slow (26-period) moving average — it measures momentum. The signal line is a 9-period average of the MACD line. When the MACD line crosses above the signal line it's bullish; crossing below is bearish.

What does the MACD histogram show?

The histogram is the distance between the MACD line and the signal line, drawn as bars around a zero line. Growing bars mean momentum is accelerating; shrinking bars mean it's fading. The histogram flipping from below zero to above marks the crossover moment visually.

What are the best MACD settings?

The standard is 12, 26, 9 — a 12- and 26-period EMA with a 9-period signal line, as designed by Gerald Appel. Faster settings react sooner but give more false signals; slower settings are steadier. Most traders leave it on the 12-26-9 default.

Is MACD better than RSI?

Neither is 'better' — they answer different questions. MACD tracks trend and momentum shifts via moving-average crossovers and has no upper or lower bound; RSI is a 0–100 oscillator that flags overbought and oversold stretch. Many traders run both: MACD for trend, RSI for extremes.

Related terms

Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.ATR (Average True Range)ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.Bollinger BandsBollinger Bands wrap a price chart in three lines: a middle moving average with an upper and lower band set two standard deviations away. The bands widen when volatility rises and squeeze together when it falls, framing whether price is relatively high or low.BreakdownA breakdown is when price falls decisively through a support level it had been holding above — the bearish mirror of a breakout. It signals sellers have overwhelmed the buyers defending support, and often triggers a fast move lower as stops and new sellers pile in.
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