Moving average convergence divergence (MACD) is one of the most popular technical indicators in trading. The MACD is appreciated by traders worldwide for its simplicity and flexibility, as it can be used as a trend or momentum indicator and signal opportunities to enter and exit positions.

Learn more about MACD and some of the strategies used by traders.

KEY TAKEAWAYS

• Moving average convergence divergence is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. 

• Traders use the MACD to identify when bullish or bearish momentum is high to identify entry and exit points for trades.

• MACD is used by technical traders in stocks, bonds, commodities, and FX markets.

• There are a number of MACD strategies that traders can use, including the histogram, the crossover, the zero-cross, the money flow index, and the relative vigor index.

• One of the biggest risks of using a MACD is that a reversal signal can be a false indicator.MACD: An Overview

  The concept behind the MACD is fairly straightforward. Essentially, it calculates the difference between an instrument's 26-day and 12-day exponential moving averages (EMA). In calculating their values, both moving averages use the closing prices of whatever period is measured.TRADE

  TABLE OF CONTENTS

  • TECHNICAL ANALYSIS

  • TECHNICAL ANALYSIS BASIC EDUCATION

  How to Trade the MACD

  By

  BORIS SCHLOSSBERG

  Updated May 04, 2023

  Reviewed by

  SAMANTHA SILBERSTEIN

  Fact checked by

  SUZANNE KVILHAUG

  Moving average convergence divergence (MACD) is one of the most popular technical indicators in trading. The MACD is appreciated by traders worldwide for its simplicity and flexibility, as it can be used as a trend or momentum indicator and signal opportunities to enter and exit positions.

  Learn more about MACD and some of the strategies used by traders.

  KEY TAKEAWAYS

  • Moving average convergence divergence is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. 

  • Traders use the MACD to identify when bullish or bearish momentum is high to identify entry and exit points for trades.

  • MACD is used by technical traders in stocks, bonds, commodities, and FX markets.

  • There are a number of MACD strategies that traders can use, including the histogram, the crossover, the zero-cross, the money flow index, and the relative vigor index.

  • One of the biggest risks of using a MACD is that a reversal signal can be a false indicator.

                

  

  MACD: An Overview

  The concept behind the MACD is fairly straightforward. Essentially, it calculates the difference between an instrument's 26-day and 12-day exponential moving averages (EMA). In calculating their values, both moving averages use the closing prices of whatever period is measured.

  On the MACD chart, a nine-period EMA of the MACD itself is also plotted. This line is called the signal line, which acts as a trigger for buy and sell decisions. The MACD is considered the faster line because the points plotted move more than the signal line, which is regarded as the slower line.

  The MACD histogram is a visual representation of the difference between the MACD and its nine-day EMA—not highs and lows. The histogram is positive when the MACD is above its nine-day EMA and negative when the MACD is below its nine-day EMA. The point on the histogram where momentum is zero is the zero line.

  If prices change rapidly, the histogram bars grow longer as the speed of the price movement—its momentum—accelerates and shrinks as price movement decelerates.