MACD (Moving Average Convergence Divergence)
MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages of a security's price.
Created by Gerald Appel in the late 1970s, MACD has three parts. The MACD line is the 12-period EMA minus the 26-period EMA. The signal line is a 9-period EMA of the MACD line. The histogram shows the difference between the MACD line and the signal line as bars.
When the MACD line crosses above the signal line, traders often read it as a bullish signal; crossing below is read as bearish. When MACD moves above zero, the short-term average is above the long-term one, suggesting upward momentum. A growing histogram shows strengthening momentum.
Divergences are also watched: if price makes a new low but MACD makes a higher low, selling pressure may be fading.
Like other indicators based on moving averages, MACD lags price and can produce whipsaw signals in sideways markets. Example: if a stock's 12-day EMA is $102 and its 26-day EMA is $100, the MACD line is +2, indicating the shorter-term trend is above the longer-term one.