In the 1970s, Gerald Appel, a technical analyst and trader, came across a disruptive concept that would change the way traders analyzed financial markets: the MACD.

The story goes that Appel was studying different ways to combine mobile media to identify buy and sell signals on price charts. And he realized that resetting a short-term exponential moving average from another long-term exponential moving average generated crossovers and divergences that could be used as trend indicators.

Fascinated by this discovery, Appel decided to name his creation "MACD", which stands for Moving Average Convergence Divergence. The MACD quickly became one of the most popular and widely used indicators in technical analysis.

The concept behind the MACD is ingeniously simple but effective. It combines two exponential moving averages (EMAs) of different periods: one shorter and one longer. The difference between these two EMAs is plotted on a separate chart, known as the MACD line. Additionally, a signal line is added, which is an EMA of the MACD itself.

When the MACD line crosses above the signal line, it is considered a bullish signal, indicating that it is a good time to buy. On the other hand, when the MACD line crosses below the signal line, it is considered a bearish signal, indicating that it is a good time to sell.

But the MACD is not just about line crossings. It can also be used to identify divergences. A bullish divergence occurs when the price of an asset forms lower lows, but the MACD forms higher lows. This suggests that the downtrend may be losing steam and that a bullish reversal could be on the horizon. Conversely, a bearish divergence occurs when the price forms higher highs, but the MACD forms lower highs, indicating a possible bearish reversal.

These are reading times.