MACD
MACD (Moving Average Convergence Divergence) is a technical indicator that uses the gap between two exponential moving averages to judge trend direction and momentum. It is shown as two lines and a histogram below the price chart.
The three parts of MACD
MACD was developed by Gerald Appel in the late 1970s. With the standard settings, the MACD line is the 12-period EMA minus the 26-period EMA. When the faster average is above the slower one, the MACD line is positive; when below, negative.
The signal line is a 9-period EMA of the MACD line itself. The histogram shows the difference between the MACD line and the signal line, so its bars grow when momentum accelerates and shrink when it fades.
How traders read it
A crossover of the MACD line above the signal line is commonly read as momentum turning up, and a cross below as momentum turning down. A move of the MACD line above or below zero shows the 12 and 26-period EMAs crossing, which is a broader trend cue.
Divergences matter here too: if price makes a new high but the MACD makes a lower high, upward momentum may be weakening.
An example
Say a coin has drifted lower for weeks and the MACD line sits below zero. Then price starts to recover, the MACD line rises and crosses above its signal line while still below zero, and the histogram turns positive. That shows momentum improving. If the MACD line later crosses above zero as well, the shorter-term trend has moved above the longer one.
Limits and common mistakes
MACD is built from moving averages of moving averages, so it lags. By the time a crossover appears, part of the move has already happened. In sideways markets, the lines cross back and forth and generate many false signals.
Its values are also in price units, not a fixed scale like the RSI, so a MACD reading of 50 on one coin cannot be compared with 50 on another. Treat it as a way to describe momentum, ideally confirmed by price structure and volume.
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Frequently asked questions
What do the MACD settings 12, 26, 9 mean?
The MACD line is the 12-period EMA minus the 26-period EMA, and the signal line is a 9-period EMA of that difference. These are the standard defaults.
Is a MACD crossover a buy or sell signal?
Many traders treat it as a momentum cue, but it is not a reliable signal alone. Crossovers lag and often fail in sideways markets.
What is the MACD histogram?
It plots the distance between the MACD line and the signal line. Growing bars show strengthening momentum; shrinking bars show it fading.
Related terms
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