MACD (Moving Average Convergence Divergence)
Learn how to calculate and interpret MACD (Moving Average Convergence Divergence) with its formula, a worked example, industry context and common mistakes.
Compares fast and slow exponential moving averages to show trend momentum and possible crossovers.
Formula
MACD = EMA 12 - EMA 26; Signal Line = EMA 9 of MACD
Worked exampleIf the 12-period EMA is 105 and the 26-period EMA is 101, the MACD line is 4.
Calculation steps
- Calculate the 12-period EMA.
- Calculate the 26-period EMA.
- Subtract the slow EMA from the fast EMA, then compare MACD with its signal line.
How to interpret it
MACD above its signal line indicates improving momentum; below the signal line indicates weakening momentum.
Industry context
MACD is often more useful in trending markets than in sideways markets where crossovers can be noisy.
Accounting and market variations
Definitions, reporting choices, periods, capital structures, and market conventions can change how this metric should be compared.
- Do not treat every crossover as a trade signal.
- Check whether price is above or below major moving averages.
- Remember that MACD is a lagging indicator.