The parts of the MACD
MACD stands for Moving Average Convergence Divergence. It is built from the difference between two moving averages of price, plotted as the MACD line, along with a signal line (a moving average of the MACD line) and a histogram showing the gap between the two.
The idea is to capture momentum: when the shorter average pulls away from the longer one, momentum is building in that direction; when they converge, momentum is fading. The histogram makes this expansion and contraction easy to see at a glance.
The common signals
The best-known MACD signal is the crossover: when the MACD line crosses above the signal line, some read it as bullish momentum; a cross below as bearish. Others watch the histogram flipping from negative to positive, or the MACD crossing the zero line, as related cues.
A worked caution: in a strong, steady trend these crossovers can be helpful, but in a sideways, choppy market they flip back and forth constantly, generating a string of small losses. Like all such tools, the MACD shines in trends and struggles in ranges.
Its limits
Because the MACD is derived entirely from moving averages, it inherits their lag. It confirms momentum that has already developed rather than predicting turns, so acting on its signals means accepting you are never at the very start of a move.
The MACD is a reasonable tool for gauging momentum and spotting divergences, but it is not a forecasting engine. Combining it blindly with the promise of profit is a mistake. Treat it as context, keep your stops, and remember that no indicator removes the fundamental uncertainty of where price goes next.