MACD (Moving Average Convergence Divergence)
Technical IndicatorsQuick Definition
A trend-following momentum indicator showing the relationship between two moving averages.
Detailed Explanation
The MACD is calculated by subtracting the 26-period EMA from the 12-period EMA, with a 9-day EMA of the MACD called the signal line. Traders watch for three main signals: crossovers (when MACD crosses the signal line), divergences (when MACD diverges from price action), and rapid rises/falls indicating overbought/oversold conditions. The histogram shows the difference between MACD and signal line. MACD works best in trending markets but can give false signals in ranging conditions. It's one of the most popular indicators due to its versatility in identifying both trend and momentum.
Real Trading Example
When the MACD line crosses above the signal line while both are below zero, it often signals the start of a bullish reversal.