MACD (Moving Average Convergence Divergence)
An indicator that reads the direction and strength of a price trend from the gap between short-term and long-term moving averages.
MACD line = 12-day exponential moving average − 26-day exponential moving average
If the MACD line is above the signal line and the histogram (the gap between the two) is widening, upward momentum is seen as strengthening.
In plain terms
It is an indicator that looks at the distance between the short-term movement of the price (12-day average) and the long-term movement (26-day average). When the short-term movement spreads above the long-term one, momentum is seen as leaning upward; when it spreads below, momentum is seen as leaning downward.
The "exponential moving average" used here is an average that puts more weight on recent prices. That is why it responds a bit more quickly to changes in recent movement.
What it tells you
It shows whether the price is currently trending up or down, and whether that momentum is strengthening or weakening. It's an indicator meant to read both the "direction and momentum" of a trend together.
When the MACD line crosses above the signal line, it's often read as an upward signal (commonly called a golden cross); when it crosses below, as a downward signal (a dead cross).
Formula
MACD line = 12-day exponential moving average − 26-day exponential moving average Signal line = 9-day exponential moving average of the MACD line Histogram = MACD line − Signal line
What high or low means
If the MACD line is above the signal line and the histogram (the gap between the two) is widening, upward momentum is seen as strengthening.
Conversely, if it is below the signal line and the histogram grows more negative, downward momentum is seen as strengthening.
Because MACD uses averages of past prices, its signals arrive a beat late (a lagging indicator). It often tells you only after a large move has already begun.
In a sideways market that moves up and down without direction, signals keep going astray (false signals) and can be more confusing than helpful.
Like RSI and moving averages, it looks only at price movement, not at the company's value. It is a tool for describing the state of a trend, not a recommendation to buy or sell.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see MACD alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.