MACD (Moving Average Convergence Divergence) is a popular momentum indicator developed by Gerald Appel. It shows changes in the strength, direction, and momentum of a trend.

Components

  • MACD Line = 12 EMA - 26 EMA
  • Signal Line = 9 EMA of MACD Line
  • Histogram = MACD Line - Signal Line

Trading Signals

1. Crossover

  • Bullish: MACD crosses above signal line
  • Bearish: MACD crosses below signal line

2. Zero Line Cross

  • MACD above 0 = Bullish momentum
  • MACD below 0 = Bearish momentum

3. Divergence

  • Bullish divergence: Price makes lower low, MACD makes higher low
  • Bearish divergence: Price makes higher high, MACD makes lower high

Key Points

  • Works best in trending markets
  • Divergence signals are the most powerful
  • Can give false signals in ranging markets
  • Combine with other indicators for confirmation
  • Default settings: 12, 26, 9