The MACD helps to distinguise the trent by revealing the relationship between two moving averages. It is a momentum technical indicator.

MACD is a combination of three exponential moving average lines. A slow line has the default setting of a 26-day MA, the fast line has the default setting of a 12-day MA, and the signal line is usually a 9-day MA. The signal line is generated from the difference between the fast and slow exponential moving averages. The signal line also serves as the indicator for buy and sell signals.

There are three ways to use the MACD. We will show each example.

MACD Crossovers

For a bullish signal, look for the MACD to rise above the signal line for upward momentum. For a bearish sign, look for the MACD to fall below the signal line, signifying downard momentum.

Divergence

When the price of an asset shows positive divergence from the MACD, it signals a bullish trend. Negative divergence possibly means the change to a bearish trend. For more on divergences, click here.

Overbought/Oversold

(When the MACD rises or decreases substantially) If the shorter term MA rises substantially above the longer term MA, this is considered an overbought signal. If the shorter term MA decreases substantially below the longer term MA, this is considered oversold.