MACD or Moving Average Convergence Divergence is probably the most popular momentum indicator used in trading. It basically measures the difference between 2 moving averages and plot it as a single line below the chart.

The Moving Average Convergence Divergence (MACD) was invented by Gerald Appeland is one of the most widely used indicators. This is probably due to the simplicity of calculation and reliability of the signals. The Moving Average Convergence Divergence technical analysis uses two moving averages MA (most often exponential moving averages-EMA) and subtract the longer period MA from the shorter period MA and the results is a line that oscilliates above and below zero. This gap between the two MAs shows the momentum.

## Identifying Divergence Using Histogram

The most used settings for this technical analysis is a 26 and a 12 exponential moving average. Choosing a shorter EMA will result in a quicker indicator which then signals trades sooner than the traditional settings. This will likely give more whipsaws. It is therefore important to do a back test to see if the faster signals will outweigh the whipsaws. Choosing a longer EMA will give fewer but more reliable signals, often catching the major moves.

### Commonly Used Settings

Usually a 9 EMA is plotted together with the Moving Average Convergence Divergence to give you a quicker signal than the 26 and 12 EMA crossover (MACD move above zero). Often you will see a histogram which is the difference between the MACD technical analysis and the 9 EMA. The histogram is below zero when the MACD is below the 9 EMA and the histogram is above zero when the it is above the 9 EMA.

A Moving Average Convergence Divergence above zero means that the 12 EMA is above the 26 EMA and that tells us that the trend is up. If the MACD is declining while above the zero it is telling us that the momentum to the upside is decreasing. This can warn us that the trend might change. If the 26 EMA is above the 12 EMA the MACD would be under zero. A rising MACD under zero tells us that the momentum is decreasing and a potential trend reversal could be in the cards.

### Tips and Ideas

We now know that the MACD tells us and when the entry signal appears but we can do better than that:

1. You can decide to add some filters in order to avoid the lowest odds trades. We know that the short term trend is up when the MACD is above zero but what about the longer term trend? After determining the major trend you only take the MACD crossover with that trend.

2. Another strong and widely used aspect of this technical analysis is divergence. If a price makes new low but MACD makes a higher low then we have positive divergence. This can signal a stronger bounce and thereby a better MACD crossover signal.

3. The MACD Histogram can also show divergence. If price makes a new low but MACD histogram makes a higher low we have positive divergence. What it tells us is that the momentum (spread between MACD and 9EMA) is smaller on the current move compared to previous moves. After seeing the divergence you wait for the histogram to cross zero. This means that 9EMA has crossed MACD.

### Our Implementation

Like with many other indicators I like to combine MACD with some sort of trend-indicator. Such as moving averages. I also looked to the left of the chart to see if we are trending or consolidating. If price is consolidating in a small range then the late entry on Moving Average Convergence Divergence will be useless as my target (top or bottom of consolidation) is probably just around the corner giving me a bad risk to reward.

saud says

Hello, Where Can I download like this MACD? regards

Philip says

Most if not all charting packages have built in MACD.

Jho Capellan says

Hi Philip,

How can i configure my MACD indicator in my trading platform, coz when MACD is selected as my indicator, only the histogram and the signal line is presented. MACD line is not presented.

Thanks,

jho

Philip Thygesen says

It depends what platform you are using. I suggest you write to your platform provider and get them to guide you.

Philip

buddy says

your videos are very good. They are easy to understand and explained very clearly. Really appreciate your effort.

Thanks a lot.

It is better than I read many books.

redneedle says

Thanks for your smart & sharp thoughts! Great & simple! If we summarize the Clue moments of MACD usage, one of them is really brilliant – it helps definitely to decide whether price going to bounce off 100 or break it throu …. it’s really working pattern to make consistent pips!

Thank again for your video explanation -)))

Hany Hakim says

I’m trying to understand, Your website helped me a lot.

Indeed, what have been written on the commentry above is actually few of what you deserve.

Querry:

I’m really strugling to implement (MACD or RSI) since the charts are giving different diagrams when using different periods of illustration on the instrument price e.g. 5,10,30min,1,2,4,8hr,W,M.

In fact this is really confusing because it gives different signs and cannot define the suitable strategy.

kapil i bhatt says

If price makes a new low but MACD histogram makes a higher low we have positive divergence. What it tells us is that the momentum (spread between MACD and 9EMA) is smaller on the current move compared to previous moves. After seeing the divergence you wait for the histogram to cross zero. This means that 9EMA has crossed MACD

if we want to trade the said stretegy in a risiing trand or vice e varsa what stop loss we should consider in our mind to exis if the trade will not go in our favour

joe says

Your videos are clear, concise, and to the point, while still containing the USEFUL detail that separates yours from others on the web.

Great Job!

udy says

finally i stumble upon a site that is awesome. i learnt about my favourite indicator macd here better than what i have being getting on other sites. a huge thank you

Pascal says

Among the hip of junk we can find, a very few are serious and professional. Your site and videos are by far the most professional we can find. Good Job and Thank you.

Philip says

Thank you very much for your kind words. I am glad you find the videos useful.

Danny says

Finally a video that teaches you about the indicator instead of just showing a past trade. Thanks!!