What is MACD Indicator?

MACD (Moving Average Convergence Divergence) measures the relationship of exponential moving averages. MACD displays a blue line (MACD line), a red line (signal line) & green and red colored histograms. The MACD line is the difference between two exponentially leveled moving averages – usually 12 and 26-periods, whilst the signal line is generally a 9-period exponentially smoothed average of the MACD line.

These MACD lines waver in and around the zero line. This gives the MACD the characteristics of an oscillator giving overbought and oversold signals above and below the zero-line respectively.

What Does MACD Indicate?

MACD measures the strength of the momentum or the trend by using the MACD line and 0 line as the reference points.

When MACD line crosses above 0 - Uptrend

When MACD line crosses below 0 - Downtrend

When MACD line crosses above the signal line - Buy Indication

When MACD line crosses below the signal line - Sell Indication

It should be considered that MACD is a lagging indicator. It sometimes gives false signals. Hence, MACD should not be used as a standalone tool. It should be either combined with other indicators or price action for better results.