What Is MACD? The Momentum Indicator Explained

MACD — short for Moving Average Convergence Divergence — is a popular indicator that shows a stock's momentum: whether buying or selling pressure is building or fading. It does this by tracking the changing gap between two moving averages of the price.

The idea in one breath

A moving average smooths out price into a flowing line. MACD compares a fast (short-term) average with a slow (long-term) average. When the fast one pulls away from the slow one, momentum is strengthening; when they drift back together, momentum is fading. That's the whole concept — the name literally means "the averages coming together (convergence) and spreading apart (divergence)."

The three parts of MACD

MACD is usually drawn in a panel below the price chart and has three components:

• The MACD line. This is the difference between the 12-period and 26-period moving averages (a fast average minus a slow one). When it's above zero, the short-term average is above the long-term one.
• The signal line. This is a 9-period average of the MACD line itself — a smoothed, slower version. It acts as a reference point.
• The histogram. Bars showing the gap between the MACD line and the signal line. Growing bars mean the two are separating (momentum building); shrinking bars mean they're converging (momentum easing).

(The 12, 26, and 9 are the traditional settings, but they can be adjusted.)

What traders watch for

Three patterns come up most often. Note these describe what the indicator is showing — they aren't instructions to trade.

• Crossovers. When the MACD line crosses above the signal line, some read it as momentum turning up; crossing below, turning down. This is the most common event traders track.
• The zero line. The MACD line crossing above zero means the fast average has moved above the slow one — a sign the short-term trend has strengthened. Below zero is the reverse.
• Divergence. When price makes a new high but MACD doesn't (or vice versa), momentum may be quietly weakening even as price holds up. Traders treat this as a caution flag, not a guarantee.

Where MACD fits

MACD belongs to a family of momentum indicators that measure the speed and strength of price moves rather than value. Its close cousin is the RSI, which approaches momentum from a different angle. Because MACD is built entirely from moving averages, it makes sense to understand how moving averages work first. Many traders read MACD alongside price patterns and volume rather than relying on it alone.

The bottom line

MACD measures a stock's momentum by tracking the shifting gap between a fast and a slow moving average, displayed as the MACD line, the signal line, and a histogram. Traders watch crossovers, the zero line, and divergences to sense whether momentum is building or fading. It's a useful lens on trend strength — but it lags, it can mislead in sideways markets, and it works best combined with other context, never alone.