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. Shown as bars
The default parameters are 12 / 26 / 9, but they can be changed for different strategies.
How to interpret MACD
Crossover signals
- MACD crossing above the signal line: Upside momentum signal
- MACD crossing below the signal line: Downside momentum signal
Zero line
- MACD above zero: The short-term EMA is above the long-term EMA → uptrend tendency
- MACD below zero: The short-term EMA is below the long-term EMA → downtrend tendency
Histogram
The histogram is a visual expression of the difference between MACD and the signal line:
- Histogram growing: Momentum is strengthening
- Histogram shrinking: Momentum is weakening; trend strength may be fading
Divergence
- Positive divergence: When price makes new lows but MACD does not make the same lows, downside momentum may be weakening
- Negative divergence: When price makes new highs but MACD does not make the same highs, upside momentum may be weakening
Divergences are one of the early indicators of trend reversal signals.
Using MACD on Paribu
In the Paribu app, on the Market Detail > Chart tab, you can turn on the MACD indicator while the candlestick chart is active. MACD is drawn in a separate panel below the price chart; the MACD and signal lines appear on top, with the histogram below.
Note: MACD is calculated by default with the 12/26/9 parameters. Lower periods can be used for more responsive signals, and higher periods for fewer signals.
Strengths of MACD
- Both trend and momentum: Offers two layers of analysis in a single indicator
- Clear signals: Crossovers and the histogram are visually easy to read
- Different time frames: Applicable to short, mid and long-term strategies
- Widespread use: It is the common language of global analysts; this is reflected in market behaviour
Limitations of MACD
- Lagging indicator: Because it is EMA-based, it reacts after the price move
- Misleading signals in sideways markets: While price moves within a certain range, frequent crossovers can occur
- Insufficient on its own: Should be evaluated together with volume, RSI and price formations
- Parameter sensitivity: Settings other than 12/26/9 produce different signals; strategy consistency must be preserved
MACD strategies
Common approaches used with MACD in technical analysis:
- Crossover strategy: The moments when MACD and the signal line cross are interpreted as trade signals
- Zero line strategy: The moments when MACD crosses zero up or down are used as trend direction confirmation
- Divergence strategy: Divergences between price and MACD are interpreted as trend reversal signals
- Multi-timeframe: Once trend direction is determined on a larger time frame, MACD signals on the smaller frame are used as trade entry points
Note: Evaluating MACD together with RSI, volume and price formations — rather than on its own — helps filter out misleading signals.
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