MACD is calculated by subtracting a slower exponential moving average from a faster exponential moving average. The commonly used calculation compares a 12-period average with a 26-period average.
The result forms the MACD line. A signal line, usually a 9-period average of the MACD line, is added to show how the current reading compares with its own recent average. A histogram displays the distance between the two lines.
Why it matters in live markets
MACD helps organise information about momentum and moving-average relationships. Traders commonly observe whether the indicator is above or below zero, whether the MACD and signal lines cross, and whether the histogram is expanding or contracting.
Its meaning depends on the wider market environment. A crossover inside a strong trend can have a different context from the same crossover inside a sideways range.
Key points
- MACD stands for Moving Average Convergence Divergence.
- It compares a faster and slower exponential moving average.
- The indicator includes a MACD line, signal line and histogram.
- It is unbounded and moves above and below a zero line.
- MACD is based on historical price and can lag.
- Its readings provide context, not guaranteed outcomes.
Example
If the faster exponential moving average rises further above the slower average, the MACD line generally moves higher. If the two averages move closer together, the MACD line moves towards zero.
Related glossary terms
Momentum, Moving average, Exponential moving average, MACD signal line, MACD histogram, Divergence, Market structure
Where you will see it
You will usually see MACD in technical indicator panels below price charts, chart-education guides, platform tutorials and market commentary discussing momentum or moving-average relationships.