MACD explained: lines, histogram, crossovers and divergence

MACD (Moving Average Convergence Divergence) shows the relationship between two exponential moving averages of price. When the faster one pulls away from the slower one, momentum is building; when they come back together, it is fading. It was developed by Gerald Appel in the late 1970s and remains a standard tool for reading trend and momentum in one panel.

The three components

With the default settings 12, 26, 9:

• MACD line = EMA(12) − EMA(26) of the close. Positive when the 12-period average is above the 26-period average, negative when below.
• Signal line = a 9-period EMA of the MACD line itself — a smoothed version of it.
• [Histogram](/glossary/histogram) = MACD line − signal line, drawn as bars around zero.

So MACD is literally a moving average crossover expressed as a single line, with a second layer of smoothing on top. If you know moving averages, you already understand most of MACD.

Because MACD is measured in price units (pips for forex), its values are not comparable across instruments or timeframes. A MACD of 0.0004 on EUR/USD M1 and 0.04 on USD/JPY M1 can describe similar momentum.

Reading MACD

Signal-line crossovers

When the MACD line crosses above the signal line, short-term momentum is turning up; crossing below means it is turning down. This is the most common MACD signal and also the one with the most false alarms, because in a sideways market the two lines cross back and forth constantly.

The zero line

When the MACD line crosses zero, the 12-period EMA has crossed the 26-period EMA. Above zero, the faster average is above the slower one — an upward bias; below zero, a downward bias. Zero-line crosses are slower than signal-line crosses but describe the broader direction more calmly.

A common way to combine them: only take signal-line crossovers in the direction of the zero line — upward crosses while MACD is above zero, downward crosses while it is below.

The histogram

The histogram shows the gap between MACD and its signal line. Bars growing taller mean momentum is accelerating; bars shrinking toward zero mean it is slowing, often before the lines actually cross. Many traders find the histogram the most useful part, because shrinking bars are an early sign that a move is losing energy.

Divergence

As with other oscillators, a divergence appears when price and MACD disagree. Price makes a higher high while MACD makes a lower high: the second push up had less momentum behind it. The mirror case at lows is a bullish divergence.

MACD divergences can persist through several swings in a strong trend, so they are better used as a reason to stop adding trades in the trend's direction than as a reason to bet against it immediately.

A worked example

On GBP/USD M5, price has been rising. The MACD line is at +0.00060, the signal line at +0.00045, so the histogram shows +0.00015. Over the next three candles:

1. Price makes a small new high. MACD +0.00058, signal +0.00048, histogram +0.00010 — momentum is easing.
2. Price pauses. MACD +0.00052, signal +0.00049, histogram +0.00003.
3. Price dips. MACD +0.00046, signal +0.00048, histogram −0.00002 — a bearish signal-line crossover.

What has happened: the uptrend lost acceleration (shrinking histogram), then short-term momentum turned down (crossover), but MACD is still well above zero, so the 12 EMA remains above the 26 EMA. This looks like a pullback inside an uptrend, not a confirmed reversal. A trader using the zero-line filter would ignore the bearish crossover and wait to see whether the uptrend resumes.

Lag: the price of smoothing

MACD is built from moving averages of moving averages, so it lags. By the time a zero-line cross confirms a new trend, a noticeable part of the move may be over. Signal-line crossovers react faster but at the cost of more false signals. There is no setting that is both fast and reliable; shorter periods (for example 6, 13, 5) are quicker and noisier, longer ones smoother and slower.

MACD on short expiries

On S5–S30 charts, MACD crossovers happen every few candles and mostly reflect noise. For expiries of 1–5 minutes, it is often more useful to read MACD on M1 or M5 as a background filter — which side of zero, histogram growing or shrinking — than to trade every crossover on a second-based chart. Remember that a crossover is computed from closes; it appears after the candle closes, and a 30-second trade opened on it starts with that delay built in.

Typical mistakes

• Trading every signal-line crossover in a sideways market.
• Treating divergence as an immediate reversal signal.
• Comparing MACD values across different instruments.
• Adding MACD to two moving averages and calling it "three confirmations" — it is derived from the same data.
• Expecting it to work differently on OTC: on Sky Trade, OTC prices are generated by the server, do not track any real market and have no predictable next move.

How to add it in the Sky Trade terminal

Open the Indicators menu above the chart and switch on MACD in the Oscillators group; it opens in a separate panel with the MACD line, signal line and histogram, using the standard 12, 26, 9 settings.