Components
MACD = 12-period EMA − 26-period EMA Signal line = 9-period EMA of the MACD line Histogram = MACD − Signal
Signals
- **MACD crossing above signal**: bullish momentum shift
- **MACD crossing below signal**: bearish momentum shift
- **Zero-line cross**: trend confirmation
- **Divergence**: same principle as RSI
Strengths
- Combines trend (EMAs) with momentum (difference)
- Histogram makes changes visual
Weaknesses
- Lagging on turns
- Whipsaws in choppy markets
- Not effective on very low timeframes without filtering
Practical Use
Pair MACD with a higher-timeframe trend filter (e.g., 50 or 200 SMA). Take MACD crosses only in the direction of the higher-timeframe trend.
Key Takeaways
- MACD is a hybrid trend/momentum indicator.
- Best used in trending conditions with a directional filter.
- Divergences at structural levels are the highest-value signals.