What Is the MACD Indicator?
In short
MACD, short for Moving Average Convergence Divergence, is a trend-following momentum indicator built from the difference between two exponential moving averages of the closing price.
MACD was developed by Gerald Appel in the late 1970s. It tracks how far a fast exponential moving average of the closing price sits from a slower one. When the fast average pulls away from the slow one the difference widens, and when the two draw together it narrows; the name Convergence Divergence comes from that movement of the two averages toward and away from each other.
The standard version uses an exponential moving average of 12 bars and one of 26 bars. Their difference is the MACD line. A 9-bar exponential average of the MACD line is the signal line, and the gap between the two lines is plotted as a histogram. The MACD line crosses zero when the fast average crosses the slow one, and it crosses its signal line when momentum changes pace.
Because MACD is built from moving averages, it lags price and it has no fixed scale: unlike the RSI, a value means something only relative to the same instrument's own history, and values of different instruments cannot be compared. Crossovers occur often in sideways markets, where they carry little information. The 12, 26 and 9 settings are a convention that users can change. A histogram that grows shows the gap between the two lines widening and one that shrinks shows it narrowing; it is derived from the same data and carries the same lag.
Formula
MACD line = EMA(close, 12) - EMA(close, 26)
Signal line = EMA(MACD line, 9)
Histogram = MACD line - Signal lineThe formula is shown as code; N stands for the number of bars or periods.
Figures used in this guide
- 9
- standard length of the signal line average, in bars
- 12
- standard length of the fast exponential average, in bars
- 26
- standard length of the slow exponential average, in bars
Each number in the text is a definition, a convention or a stated value of the source, not a market observation.
How Lzzo.com shows it
Lzzo.com does not currently calculate or chart MACD. The Technical indicators section of a product page does show its building blocks: exponential moving averages for several periods, next to the simple moving averages. The moving averages guide explains how both are calculated, and the RSI guide covers the oscillator that the section does display.
Related guides
Sources
- Gerald Appel, Technical Analysis: Power Tools for Active Investors (FT Press, 2005)
- John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999)
Primary and official sources, named as plain text.