MACD (Moving Average Convergence Divergence)
A momentum indicator showing the relationship between two exponential moving averages of price.
What is MACD?
The Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The result is the MACD line. A 9-period EMA of the MACD line — the signal line — is plotted alongside it. When the MACD line crosses above the signal line, it generates a bullish signal; when it crosses below, a bearish signal. The histogram — the difference between MACD and the signal line — shows the rate of momentum change. Developed by Gerald Appel in the late 1970s, MACD is one of the most widely used technical indicators for identifying trend direction, momentum shifts, and potential reversal points.
Example
A stock's 12-day EMA is $52.50 and its 26-day EMA is $50.00. The MACD line is $2.50 (positive, indicating bullish momentum). The 9-day EMA of the MACD (signal line) is $2.00. The histogram is $0.50 (MACD above signal, bullish). If the MACD line then falls from $2.50 to $1.80, crossing below the $2.00 signal line, a bearish crossover signal is generated.
Source: Investopedia — MACD