MACD (Moving Average Convergence Divergence) packages trend and momentum into one indicator. It is built from moving averages but reads more like an oscillator, which is why it is one of the most popular indicators in any market.
The three parts
- MACD line — the difference between a fast and a slow EMA; it measures momentum (how fast the averages are pulling apart).
- Signal line — an EMA of the MACD line; crossovers between the two are the classic trade signals.
- Histogram — the gap between the MACD and signal lines; it grows as momentum accelerates and shrinks as it fades.
Reading it
MACD crossing above its signal line is a bullish momentum shift; below is bearish. The zero line matters too: above zero the fast EMA is above the slow (uptrend bias), below zero the reverse. A histogram that is still positive but shrinking warns that an up-move is losing steam before the lines actually cross.
Divergence
MACD's most respected signal is divergence: price makes a higher high while the MACD makes a lower high, warning that momentum is fading even as price climbs (and the mirror at lows). Like all momentum tools, MACD lags in fast moves and whipsaws in ranges — so use its signals with trend context, not in isolation.