MACD stands for Moving Average Convergence Divergence. It compares two EMAs of price and plots the difference as a momentum tool.
The three parts
- MACD line: Usually the 12 EMA minus the 26 EMA.
- Signal line: Often a 9 EMA of the MACD line.
- Histogram: The gap between MACD and signal. Expanding bars show strengthening momentum.
Basic interpretations
When the MACD line crosses above the signal line, momentum may be turning up. A cross below may suggest weakening momentum.
Traders also watch divergence: price makes a new high while MACD makes a lower high. That can warn that the trend is tiring. Divergence is a clue, not a timer.
Timeframe matters
MACD on a 5 minute chart will chatter. On a daily chart it is slower and more selective. Align the indicator with your holding period.
Combining with structure
Use MACD to confirm moves that already respect support, resistance, or trendlines. Firing long because MACD crossed while price sits under a major resistance level often ends poorly.
Sim journal tip
Log the timeframe and MACD settings with each paper trade. You will quickly see which combinations fit your market and which ones overtrade.