MACD (Moving Average Convergence Divergence) Explained

MACD is built from three parts: the MACD line (the difference between a 12-period and 26-period exponential moving average), the signal line (a 9-period EMA of the MACD line itself), and the histogram (the gap between the two lines, drawn as bars). All three move together to describe how a shorter-term average is behaving relative to a longer-term one.

The most common signal is a crossover: when the MACD line crosses above the signal line, momentum is shifting upward and some traders read it as a potential buy signal; when it crosses below, momentum is shifting downward. The histogram makes this easier to see at a glance -- bars growing away from zero mean the two lines are pulling apart (strengthening momentum), while bars shrinking toward zero mean they're converging (momentum fading, a possible turn ahead).

MACD is also used for divergence: if price makes a new high but the MACD line makes a lower high, momentum isn't confirming the new price high, which some traders treat as an early warning that the trend is losing strength even though price hasn't turned yet.

Like all moving-average-based tools, MACD is a lagging indicator -- it's built from past prices, so it confirms shifts after they've begun rather than predicting them in advance. It's most often used alongside price action, support/resistance, and market structure rather than as a standalone signal on its own.