Glossary · from the DESK dictionary
MACD
A trend-following momentum indicator displaying the relationship between two moving averages of different periods of a security's price.
In plain words
Developed by Gerald Appel, it consists of the MACD line, the signal line, and a histogram.
In more detail
The MACD measures the distance between two exponential averages (classically 12 and 26) and smooths that distance again into the signal line (9) — the histogram shows the difference between the two. Its three readings in descending reliability: the zero line separates up from down regime (slow but robust); the crossing of MACD and signal line is the classic trigger (faster, far more false signals); and divergences between price and histogram serve as early warning. The MACD is a trend follower — it shines in directional markets and produces cross after cross without profit in ranges. Deployed as a filter rather than a signal generator it is markedly more valuable.
Example
A swing trader uses the MACD purely as a regime filter: long setups only above zero, shorts only below — he does not trade the crosses themselves. One-year review: his price action setups keep their hit rate but average win size rises 40 percent, because he no longer opens longs in a down regime. Signals still came from the chart — the MACD only decided which were allowed.
What it means for traders
One of the most popular and widely used indicators in all of technical analysis.
Common pitfalls
Can generate numerous premature or false signals in sideways-trending markets.
Related terms
Momentum Indicator · Moving Average
From the DESK dictionary. For information only, not investment advice.
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