The MACD (Moving Average Convergence Divergence) blends trend and momentum in one indicator. The MACD line is the difference between a fast and a slow EMA; a signal line is an EMA of the MACD line; and a histogram plots the gap between the two.
Reading the components
When the MACD line crosses above its signal line, momentum is turning up; a cross below turns it down. Whether the whole indicator sits above or below the zero line tells you the broader bias — above zero the fast EMA leads, meaning a bullish backdrop.
Entry logic and its limits
A common plan takes a long when the MACD crosses up above the zero line in an uptrend, with a stop below the recent swing low. Requiring the cross to happen above zero filters out many weak signals. Still, because MACD is built from EMAs, it lags price and whipsaws in ranges just like a raw crossover.
- MACD line crossing above signal line = bullish momentum shift.
- MACD above zero = bullish bias; below zero = bearish bias.
- Crosses above zero in an uptrend are higher-quality longs.
- In sideways markets MACD crosses repeatedly and misleads.
MACD packages trend and momentum into one tool — crossovers plus the zero line guide bias, but it lags and needs a trending market to work.
The MACD histogram carries extra information about the strength of momentum, which is the focus of the next module.