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MACD

In short

Moving Average Convergence Divergence — trend and momentum indicator

MACD compares two moving averages to show momentum. When the fast line crosses above the slow line, it's a buy signal. Cross below = sell signal. Like two runners — when the faster one pulls ahead, momentum is shifting.

MACD = 12-day EMA minus 26-day EMA. A 9-day EMA of MACD (signal line) is plotted over it. Crossovers signal trend changes. The histogram shows the difference between MACD and signal line — widening = strengthening trend.

Formula

MACD = EMA(12) - EMA(26); Signal = EMA(9) of MACD

Related concepts

  • RSI (Relative Strength Index) — RSI scores a stock from 0–100. Above 70 means it's been rising so fast it might be due for a pullback (overbought). Below 30 means it's fallen a lot and could bounce (oversold).
  • Exponential Moving Average (EMA) — Like a regular moving average but it pays more attention to recent prices. If a stock just had a big move, the EMA reacts faster than the SMA. Traders use EMA crossovers to spot trend changes early.
  • Simple Moving Average (SMA) — Take the last 50 days of prices and average them. That's the 50-day SMA. It smooths out daily noise so you can see the real trend. Price above its SMA = uptrend; below = downtrend.
  • Moving Average Crossover — The golden cross (50-day crosses above 200-day MA) is one of the most famous buy signals. The death cross (50-day crosses below 200-day) is a sell signal. It's simple but followed by many professional traders.