Trading glossary
MACD (Moving Average Convergence Divergence) is a momentum indicator built from two moving averages. Learn the MACD line, signal line, and histogram.
MACD stands for Moving Average Convergence Divergence, a momentum indicator created by Gerald Appel. It is calculated by subtracting a longer exponential moving average from a shorter one, commonly the 26-period from the 12-period. The result is the MACD line, which rises and falls as the two averages move closer together or further apart.
A signal line, usually a 9-period average of the MACD line, is plotted alongside it. The histogram shows the distance between the MACD line and the signal line. Analysts watch crossovers between the two lines and changes in the histogram to describe shifts in momentum, though these are observations rather than instructions.
Because MACD is built from moving averages, it lags price and reflects momentum that has already developed. It can produce misleading signals in sideways or choppy markets. Most traders read MACD together with price context and other tools rather than treating any single crossover as a definitive event.
A crossover occurs when the MACD line crosses above or below its signal line. Traders describe these as potential momentum shifts, but crossovers lag price and can be unreliable in flat markets, so they are read with context.
Both measure momentum, but MACD is built from the relationship between two moving averages and is unbounded, while RSI is an oscillator bounded between 0 and 100. They describe momentum in different ways and are often used together.