Lesson 4 of 7 · Indicators
MACD
MACD measures the gap between two averages.
The MACD subtracts the 26-period EMA from the 12-period EMA. That gap is the MACD line. The signal line is a 9-period EMA of the MACD line itself. Standard settings: 12, 26, 9. The histogram shows the distance between the two lines.
Two lines, one histogram.
The MACD line and SIGNAL line appear in the panel below price. When MACD crosses above the signal, short-term momentum is outpacing longer-term momentum. The histogram shows how wide that gap is.
Crossovers lag; histograms lead slightly.
The histogram starts shrinking before the actual crossover, giving a small early read. Like all lagging indicators, the signal arrives after the move begins. MACD works in trends but chops badly in sideways ranges, generating crossovers that reverse within hours.
MACD crosses above its signal line after several days below it. What does textbook say?
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C. Short-term momentum is shifting upward. The shorter EMA pulling ahead of the longer one means recent price action is stronger. That's a momentum shift up, not a full reversal confirmation and not an overbought signal.