MACD is an indicator that combines trend analysis and oscillator features.
It helps traders:
Identify the direction of the trend.
Evaluate the strength of price movements (momentum).
Catch reversals and enter a trend at its early stage.
Structure of MACD
The indicator is plotted below the price chart and consists of three elements:
1. MACD line — the difference between two EMAs (usually 12 and 26).
2. Signal line — a smoothed EMA of the MACD line (usually 9).
3. Histogram — bars showing the difference between the MACD and the signal line.
4. Zero line — a key reference level for assessing trend strength.
How to Read MACD Signals
1. Line Crossovers
MACD crosses the signal line from below upward → Buy signal.
MACD crosses the signal line from above downward → Sell signal.
2. Histogram
Bars above zero → bullish market (strengthening upward movement).
Bars below zero → bearish market (strengthening downward movement).
Growing bars → increasing trend momentum.
Shrinking bars → weakening trend (possible reversal).
3. Signal Strength
Crossover + histogram on the same side of zero → strong signal. Crossover + histogram on the opposite side → weaker signal.
MACD Settings
Default: 12 / 26 / 9 (fast EMA, slow EMA, signal EMA).
Higher periods: fewer false signals but greater lag.
Lower periods: more signals but increased noise.
Tip: Adjust parameters only after testing them within your trading strategy.
Pros of MACD
Combines trend and momentum analysis.
Works well across different timeframes.
Effective for confirming signals from other indicators.
Cons
Lags during fast reversals.
Generates many false signals in sideways (flat) markets.
Conclusion:
MACD is a powerful tool for identifying trend direction, momentum, and potential reversals. It works best when used in combination with other indicators and with confirmation from price action.