MACD: Moving Average Convergence Divergence

MACD is a chart indicator that helps traders see whether momentum in a price is speeding up, slowing down, or reversing. It doesn't predict price directly; it measures the relationship between two moving averages, which are lines that smooth out price by averaging it over a set number of periods (candles, minutes, days, etc.).

To build it, you take a fast-moving average and subtract a slower-moving average from it. The convention most platforms use is a 12-period average minus a 26-period average, both calculated as exponential moving averages (EMAs), meaning recent price gets more weight than older price. The result is a single line, the MACD line, that oscillates above and below zero. When it's positive, the fast average is above the slow one, which usually means recent price action is stronger than the longer-term trend; when it's negative, the opposite is true.

A second line, the signal line, is added on top: it's typically a 9-period EMA of the MACD line itself. Traders watch for the MACD line crossing above or below the signal line as a possible shift in momentum — crossing up is often read as a bullish signal, crossing down as bearish. Some also plot the difference between the two lines as a histogram (bars around zero), which makes the crossovers and the speed of momentum change easier to see at a glance.

The nuance that trips people up: MACD is calculated from past prices, so every signal it gives is a reaction to what already happened, not a forecast. It works reasonably well in trending markets but produces a lot of false or late signals in choppy, sideways markets, since the averages keep crossing back and forth without any real follow-through. Traders also confuse "MACD crossing zero" (a longer-term trend signal) with "MACD crossing the signal line" (a shorter-term momentum signal) — they mean different things.