What is MACD (Moving Average Convergence Divergence)?
MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages of a security's price, typically the 12-period and 26-period EMA.
MACD (Moving Average Convergence Divergence) Explained
MACD consists of three components: the MACD line (12-EMA minus 26-EMA), the signal line (9-period EMA of MACD line), and the histogram (MACD line minus signal line). Bullish signals occur when MACD crosses above the signal line; bearish signals when it crosses below. Divergence between MACD and price is considered one of the most powerful signals.
Real-World Example
A stock is making new highs but MACD is making lower highs — this bearish divergence warns that momentum is weakening despite rising prices. A disciplined trader might reduce position size or tighten stops in anticipation of a reversal.
Related Terms
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