MACD
The gap between two averages, plotted.
MACD: the histogram is the distance between the lines MACD histogram turns positive turns negative MACD takes the distance between a fast EMA and a slow one, and plots it. When the fast average is pulling away above the slow one, MACD rises. When they converge, it falls toward zero. MACD line = EMA(12) − EMA(26) Signal line = EMA(9) of the MACD line Histogram = MACD line − Signal line MACD above zero The fast average is above the slow one. Upward momentum. MACD crossing its signal line Momentum is turning. The standard trigger. Histogram shrinking The two lines are converging. The move is losing steam, even if price is still rising. Divergence Price makes a higher high but MACD does not. The move is being driven by fewer participants. MACD is a momentum indicator wearing a trend indicator's clothes. Its histogram shrinking while price still rises is one of the more genuinely useful early warnings in the toolkit, because it measures the rate of change rather than the level. Combines trend and momentum in one view The histogram gives early warning Divergences are informative Still built from lagging averages Produces constant false crosses in a range The 12/26/9 defaults are conventions, not truths
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: Charts.