MACD: how the indicator works and how to read its signals

MACD (Moving Average Convergence Divergence) is based on the difference between two exponential moving averages (EMA). By default, the MACD line = EMA(12) − EMA(26), the signal line is the EMA(9) of the MACD line, and the histogram is the difference between them. A crossover of the lines is sometimes read as a signal of a change in momentum.

MACD lags price because it uses averages of past data. It shows changes in momentum best in trending markets, and in consolidation it produces many false crossovers. It does not work on its own and is treated as a complement to analysis of the trend and key levels. The default values (12, 26, 9) are a convention, not a law, and can be changed.