MACD – Moving Average Convergence Divergence

The MACD is a powerful trend-following momentum indicator used in technical analysis to identify potential buy and sell signals. It shows the relationship between two moving averages of a stock’s price. What Is MACD? MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA: • MACD Line = 12-day EMA – 26-day EMA • Signal Line = 9-day EMA of the MACD Line • Histogram = Difference between MACD and Signal Line How to Use MACD 1. MACD Crossover o When the MACD Line crosses above the Signal Line → Bullish (Buy Signal) o When the MACD Line crosses below the Signal Line → Bearish (Sell Signal) 2. Zero Line Cross o MACD crosses above the zero line → Bullish trend o MACD crosses below the zero line → Bearish trend 3. Divergence o Price makes a new high but MACD does not → Bearish Divergence o Price makes a new low but MACD does not → Bullish Divergence Strengths • Helps spot trend reversals and momentum shifts. • Works well in trending markets. • More responsive than simple moving average systems. Limitations • Less effective in choppy, sideways markets — can give false signals. • Works best when combined with other indicators like RSI or volume.