MACD (Moving Average Convergence Divergence) is a trend-following momentum indicator that shows the relationship between two moving averages of a stock’s price.
How it works:
- It calculates the difference between a fast (short-term) and a slow (long-term) Exponential Moving Average (EMA).
- Common settings: 12-period (fast) and 26-period (slow).
- A signal line (usually a 9-period EMA of the MACD) is plotted to show buy/sell signals.
Interpretation:
- MACD line crosses above signal line → possible buy signal.
- MACD line crosses below signal line → possible sell signal.
- Histogram bars show the distance between MACD and signal line — larger bars mean stronger momentum.
In short:
MACD helps traders see trend direction, momentum strength, and potential reversals.
