Moving Average Convergence Divergence (MACD)

What it measures:

MACD measures trend direction and momentum by calculating the relationship between two EMAs (typically 12 EMA and 26 EMA), along with a 9-period Signal line and Histogram.

How to interpret it:

• Signal Line Crossovers: MACD Line crossing above the Signal Line triggers a bullish buy signal; crossing below triggers a bearish sell signal.
• Zero-Line Crossovers: MACD above zero confirms sustained bullish trend momentum.
• Divergence: Bullish/Bearish divergence between MACD Histogram and price highlights slowing trend momentum prior to reversals.

Used for:

• Spotting trend direction changes and momentum shifts.
• Timing market entries and identifying trend divergence setup.

Limitations:

• Lagging nature means signals develop after price trend moves are already underway.
• Can produce multiple unprofitable crossovers in low-volatility sideways markets.