MACD stands for moving average convergence divergence. It turns the relationship between two exponential moving averages into an oscillator.

The parts

• MACD line: 12-period EMA minus 26-period EMA.
• Signal line: 9-period EMA of the MACD line.
• Histogram: MACD line minus signal line.

When the fast EMA pulls away from the slow one, momentum is building; when they converge, it is fading.

Common readings

• Zero line: MACD above zero means the 12 EMA is above the 26 EMA, a bullish bias; below zero, bearish.
• Signal crossovers: MACD crossing above its signal line suggests momentum turning up.
• Histogram shrinking: the move is losing speed even if price is still rising.
• Divergence: as with RSI, price making new highs while MACD does not is a warning.

Where it fits

MACD is a momentum and trend-confirmation tool. It lags because it is built from moving averages. Use it to confirm what structure already shows, for example only taking buys from support while MACD is above zero.