MACD

What this unit covers

Learn to read a MACD line, signal line and histogram, and what a crossover suggests about shifting momentum.

By the end you will be able to

• Explain the MACD Line as the gap between a 12-day and 26-day EMA.
• Read the Histogram as MACD Line minus Signal Line, not a separate reading.
• Separate what a crossover describes from what it predicts.

How it starts: Same Crossover, Two Decisions

1. Two traders watch the same stock and the same crossover today.
2. One buys more shares, the other sells everything he owns.
3. Is the reading wrong, or is something else going on?

Words you will meet

MACD Line

The 12-day EMA minus the 26-day EMA, showing whether recent price is pulling above or below the longer trend.

Signal Line

A 9-day EMA of the MACD Line itself, used as a smoothed reference to compare the MACD Line against.

Histogram

The MACD Line minus the Signal Line, drawn as bars to show that gap at a glance.

EMA

Exponential Moving Average, an average price that weights recent days more heavily than older ones.

Momentum

The current speed and direction of a price move, not a forecast of where it goes next.

In this module: Technical Indicators

1. Moving Averages & Bollinger Bands
2. RSI
3. MACD (this unit)
4. VWAP