MACD (Moving Average Convergence Divergence) is a trend-following momentum indicator that shows the relationship between two moving averages. Created by Gerald Appel in the 1970s, it's one of the most popular indicators for identifying trend changes.
MACD Components Explained
MACD consists of three elements:
| Component | Calculation | Purpose |
|---|---|---|
| MACD Line | 12 EMA - 26 EMA | Shows momentum direction |
| Signal Line | 9 EMA of MACD Line | Triggers buy/sell signals |
| Histogram | MACD - Signal | Visualizes momentum strength |
Key Insight: When the MACD line is above the signal line, momentum is bullish. When below, it's bearish.
Reading MACD Signals
Signal 1: MACD Crossovers
- Bullish crossover: MACD line crosses above signal line → Buy signal
- Bearish crossover: MACD line crosses below signal line → Sell signal
Signal 2: Zero Line Crossovers
- MACD crosses above zero: Short-term trend turning bullish
- MACD crosses below zero: Short-term trend turning bearish
Signal 3: Histogram Analysis
- Growing bars: Momentum is increasing
- Shrinking bars: Momentum is weakening (potential reversal)
Important: MACD is a lagging indicator — it confirms trends rather than predicting them. Crossover signals often come after the move has started.
MACD Divergence
Divergence between price and MACD is one of the most reliable signals:
- Bullish divergence: Price makes lower lows, MACD makes higher lows
- Bearish divergence: Price makes higher highs, MACD makes lower highs
Best Practices
| Do | Don't |
|---|---|
| Use in trending markets | Use in sideways/choppy markets |
| Combine with other indicators | Trade every crossover blindly |
| Wait for confirmation | Jump in on the first signal |
| Check the histogram | Ignore momentum strength |
Strategy Idea: Only take MACD bullish crossovers when both the MACD line and signal line are below zero — this catches the start of new uptrends.
Using MACD in VivaTrades
Create MACD strategies:
- Crossover entry: MACD crosses above Signal line
- With momentum filter: MACD > 0 (confirms bullish bias)
- Crossover exit: MACD crosses below Signal line