MACD measures the distance between two exponential moving averages of price: the faster 12-period and the slower 26-period. When they spread apart, momentum is accelerating. When they compress, momentum is weakening. A third line, the signal line, acts as a trigger to flag when the momentum shift has begun.
- MACD line
- The 12-period exponential moving average minus the 26-period EMA, showing raw momentum.
- Signal line
- A 9-period EMA of the MACD line itself, used as the trigger for entry and exit signals.
- Histogram
- The vertical bars showing the gap between MACD and signal line, widening or narrowing.
MACD crosses above signal line or histogram turns positive: momentum is rising.
MACD crosses below signal line or histogram turns negative: momentum is falling.
MACD lags price. It confirms a move already underway rather than predicting what comes next, and it whipsaws badly in choppy, range-bound markets. The desk treats it as confirmation of structure, never as a standalone signal.
We layer MACD with price structure and support-resistance to filter false signals in our morning pair reviews.