What is MACD?

MACD (Moving Average Convergence Divergence) is a momentum indicator derived from the difference between two exponential moving averages (EMAs). It shows both the direction and the strength of the trend at the same time. Developed by Gerald Appel in the 1970s, MACD is one of the most widely used momentum indicators in technical analysis.

The structure of MACD

MACD consists of three components:

• MACD line: The difference between the 12 period EMA and the 26 period EMA
• Signal line: The 9 period EMA of the MACD line
• Histogram: The difference between the MACD line and the signal line. It is shown as bars

The standard parameters in technical analysis are 12 / 26 / 9 and MACD is calculated with these values.

How is MACD interpreted?

Crossover signals

• If MACD crosses the signal line upwards: A signal of upward momentum
• If MACD crosses the signal line downwards: A signal of downward momentum

The zero line

• MACD above zero: The short-term EMA is above the long-term EMA → an upward tendency
• MACD below zero: The short-term EMA is below the long-term EMA → a downward tendency

The histogram

The histogram is a visual expression of the difference between MACD and the signal line:

• If the histogram is growing: Momentum is strengthening
• If the histogram is shrinking: Momentum is weakening and the strength of the trend may be decreasing

Divergence

• Positive divergence: If the price makes new lows while MACD does not make the same lows, downward momentum may be weakening
• Negative divergence: If the price makes new highs while MACD does not make the same highs, upward momentum may be weakening

Divergences are among the early indicators of trend reversal signals.

How do I turn on MACD on Paribu?

To turn on MACD, the chart type needs to be candle. You can tap the MACD label in the indicator bar above the chart on the market detail screen of an asset. On the Buy/Sell screen you need to tap the Indicators option on the Chart tab and mark MACD on the screen that opens.

When MACD is turned on, a separate panel appears below the price chart. In the panel the MACD line is drawn in blue and the signal line in orange; the bars below them show the difference between the two lines, that is the histogram, and are colored according to the direction of the price.

Note: Indicator parameters are fixed on Paribu; there is no period setting in the app. You can only turn indicators on and off.

The strengths of MACD

• Both trend and momentum: It offers two separate layers of analysis in a single indicator
• Clear signals: Crossovers and the histogram are visually easy to read
• Different time intervals: It can be applied in short, medium and long-term strategies
• Widespread use: It is a common language among global analysts, and this is reflected in market behavior

The limitations of MACD

• A lagging indicator: Because it is EMA based, it responds after the price move
• Misleading signals in flat markets: Frequent crossovers can occur while the price moves within a certain range
• Not sufficient on its own: It should be assessed together with volume, RSI and price patterns
• Sensitive to the time interval: The same indicator produces different signals on a 15 minute and a 1 day chart; keeping the interval you read fixed is important for the consistency of your strategy

MACD strategies

Approaches frequently used with MACD in technical analysis:

• Crossover strategy: The moments when MACD and the signal line cross are assessed as trading signals
• Zero line strategy: The moments when MACD passes zero upwards or downwards are used as confirmation of the trend direction
• Divergence strategy: Divergences between the price and MACD are interpreted as trend reversal signals
• Multiple time intervals: After the trend direction is determined on a wider time interval, MACD signals on a shorter interval are used as trade entry points

Note: Assessing MACD not on its own but together with RSI, volume and price patterns helps to filter out misleading signals.

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Frequently asked questions

What is the difference between MACD and RSI?

Both measure momentum but in different ways. RSI converts the speed of the price rising and falling over the recent period into a value between 0 and 100; MACD starts from the difference between two moving averages and shows both the direction and the strength of the trend.

Can I change the MACD parameters?

Indicator parameters are fixed on Paribu; there is no period setting in the app. You can only turn indicators on and off.

What do the histogram bars show?

The histogram shows the difference between the MACD line and the signal line as bars. If the bars are growing, momentum is strengthening; if they are shrinking, the strength of the trend may be decreasing.

Is a MACD crossover a sufficient signal on its own?

It is not. Because MACD is based on moving averages, it responds after the price move and produces frequent crossovers in flat markets. It is recommended that it be assessed together with volume, RSI and price structure.

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Related articles

• What is EMA (exponential moving average)? — The average MACD is based on
• What are technical indicators and how do you use them? — Adding and removing indicators
• What is RSI (relative strength index)? — Momentum and overbought zones
• What are Bollinger Bands (BOLL)? — Volatility bands
• What is a candlestick chart? — Candle structure and candle types