MACD is a trend and momentum indicator built from the difference between a faster exponential moving average and a slower exponential moving average. A signal line and histogram make changes in that difference easier to see.
MACD line, signal line and histogram
The histogram expands and contracts as the MACD line moves away from or toward the signal line.
The three parts of MACD
The MACD line shows the gap between the fast and slow averages. The signal line smooths the MACD line. The histogram shows the distance between the two lines.
- MACD line: fast EMA minus slow EMA.
- Signal line: smoothed MACD line.
- Histogram: MACD line minus signal line.
How traders interpret crossovers
A bullish crossover occurs when the MACD line moves above the signal line. A bearish crossover occurs when it moves below. Crossovers near the zero line can mean something different from crossovers after an extended move.
What the histogram shows
Growing positive bars show the MACD line moving farther above the signal line. Shrinking bars show that momentum is weakening, even if price is still moving in the same direction.
Where MACD struggles
MACD can react late because it is based on moving averages. Sideways markets can create repeated crossovers. Use it as one part of a complete rule set rather than as a prediction.
Frequently asked questions
What are the common MACD settings?
A common default is 12, 26 and 9, representing the fast EMA, slow EMA and signal-line period.
Is a MACD crossover enough to enter?
Not by itself. The crossover should be evaluated with trend, risk, liquidity and exit rules.
What does MACD below zero mean?
It means the faster EMA is below the slower EMA, which reflects weaker recent price momentum.