MACD

How MACD is calculated

The MACD line is the difference between a fast and a slow EMA, commonly the 12 and 26 period. A signal line, usually a 9 period EMA of the MACD line, is plotted on top, and the histogram shows the gap between the two.

How MACD is used

• →Treat the MACD line crossing above the signal line as bullish momentum and below as bearish.
• →Use the zero line: above it momentum is net positive, below it net negative.
• →Watch for divergence between MACD and price as an early warning of a turn.
• →A growing histogram shows momentum building, a shrinking one shows it fading.

Common mistakes

• ✕Trading every crossover in a flat market where MACD hugs the zero line.
• ✕Reading MACD as a price level rather than a momentum reading.

Watch: MACD explained