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MACD (Moving Average Convergence Divergence)
A momentum indicator built from two EMAs, and why a crossover alone isn't a trigger.
MACD (Moving Average Convergence Divergence) is a momentum indicator built from two exponential moving averages. The MACD line is the 26-period EMA subtracted from the 12-period EMA, plotted alongside a 9-period EMA "signal line."
Reading crossovers
When the MACD line crosses above the signal line, the reading is bullish. When it crosses below, the reading is bearish.
Limitations
A MACD crossover can produce no meaningful price move at all, or price can continue in its prior direction regardless of the signal. MACD crossovers should not be treated as a reliable standalone trigger.
Related concepts
MACD is derived entirely from moving averages, so it inherits the same lag characteristics as the underlying EMAs. Treat MACD crossovers as one input into a broader technical bias, not a trigger on their own.
Key takeaways
- MACD is the 26-period EMA subtracted from the 12-period EMA, compared against a 9-period signal line.
- A bullish signal is a MACD line crossing above the signal line; a bearish signal is the reverse.
- Crossovers can fail to produce a move, don't treat MACD as a standalone entry trigger.
- Use MACD alongside trend and other confirmation.