Introduction
You've learned candlesticks, moving averages (trend), and RSI (momentum). Now it's time for the final core indicator: MACD (Moving Average Convergence Divergence).
What makes MACD special?
MACD is a multi-purpose indicator. Unlike RSI (momentum only) or MAs (trend only), MACD does both.
- Identify momentum shifts (like RSI)
- Confirm trend direction (like moving averages)
- Time entries and exits (by spotting crossovers)
Think of MACD as a combination tool—it gives you more context in one place.
What is MACD?
MACD stands for Moving Average Convergence Divergence.
It's a momentum and trend-following indicator developed by Gerald Appel in the late 1970s. MACD measures the relationship between two moving averages (specifically, two EMAs).
What does MACD measure?
- Whether momentum is building or fading
- Whether the short-term trend is converging with or diverging from the long-term trend
- Potential points where momentum might shift direction
In simple terms: MACD helps you see when momentum is accelerating (getting stronger) or decelerating (getting weaker), and when those shifts might lead to trend changes.
The Three Components of MACD
MACD appears in a separate panel below your price chart (just like RSI). It has three main parts:
The difference between the 12 EMA and 26 EMA. Shows momentum of recent price movement.
Formula: 12 EMA − 26 EMA
A 9-period EMA of the MACD line itself. Acts as a "trigger line" for crossovers.
Purpose: Smooths MACD line
Visual representation of the distance between MACD line and Signal line.
Formula: MACD Line − Signal Line
The Histogram shows momentum strength—growing bars = strengthening, shrinking bars = weakening
Default Settings: 12, 26, 9
When you add MACD to your chart, you'll see three numbers: (12, 26, 9)
These are the industry standard settings developed by Gerald Appel and used for decades. As a beginner, stick with these defaults—they work well across all markets and timeframes.
MACD Crossovers: The Key Signals
The most common way traders use MACD is by watching for crossovers between the MACD line and Signal line.
What it suggests: Short-term momentum is accelerating to the upside. This may signal the start of an upward move.
Visual: Histogram crosses from negative to positive (bars appear above zero line)
What it suggests: Short-term momentum is decelerating or turning downward. This may signal the start of a downward move.
Visual: Histogram crosses from positive to negative (bars appear below zero line)
A crossover alone is not a trade signal. You must check:
- Is the overall trend up? (Check moving averages)
- Is price near support or resistance?
- Are candles showing bullish or bearish patterns?
The Zero Line: Context Indicator
The zero line is the horizontal line in the middle of the MACD panel. It represents the point where the 12 EMA equals the 26 EMA.
What the Zero Line Tells You:
- MACD above zero = Bullish context. The 12 EMA is above the 26 EMA (upward momentum)
- MACD below zero = Bearish context. The 12 EMA is below the 26 EMA (downward momentum)
Favor long trades (buying) when MACD is above zero
Favor short trades (selling) when MACD is below zero
Crossovers that happen above zero are stronger bullish signals. Crossovers below zero are stronger bearish signals.
The Histogram: Momentum Strength
The Histogram shows the distance between the MACD line and Signal line. It's the easiest part to read visually.
What the Histogram Tells You:
- Histogram growing taller (bars getting bigger) = Momentum strengthening
- Histogram shrinking (bars getting smaller) = Momentum weakening
- Histogram crossing zero = Confirms a crossover
BTC/USD is rallying. The Histogram shows large positive bars (far above zero). This tells you momentum is very strong—buyers in full control.
Then, the bars start shrinking. This is a warning: momentum is weakening. Even if price is still rising, the shrinking Histogram suggests the rally may be losing steam.
MACD Divergence (Advanced Warning)
Just like RSI, MACD can show divergences—when price and MACD move in opposite directions. This warns of trend exhaustion.
Bullish Divergence
Price: Lower low → Lower low
MACD: Higher low → Higher low
Meaning: Selling momentum weakening. Potential reversal up.
Bearish Divergence
Price: Higher high → Higher high
MACD: Lower high → Lower high
Meaning: Buying momentum weakening. Potential reversal down.
Divergence is a warning sign, not a trade signal. Wait for confirmation (like a crossover or candlestick pattern) before acting.
How to Add MACD in TradingView
Click "Indicators"
At the top of the chart, click the "Indicators" button (fx icon)
Search for MACD
Type "MACD" in the search box
Add to Chart
Click on "MACD" or "Moving Average Convergence Divergence". MACD will appear in a separate panel below your chart
Keep Default Settings
Default is (12, 26, 9). Don't change this as a beginner—it's the industry standard
Update Template B
Save this as "Template B (Momentum)" to include both RSI and MACD
You can add RSI + MACD together (2 indicators = fits Basic plan limit). Update your Template B (Momentum) to include both!
Practice Task
- Open TradingView and go to EUR/USD daily chart
- Add MACD indicator (default: 12, 26, 9)
- Is MACD above or below the zero line?
- Has there been a recent crossover?
- Is the Histogram growing or shrinking?
- Can you spot any divergences?
- Switch to BTC/USD and repeat the exercise
- Update "Template B (Momentum)" to include RSI + MACD
- Why is a MACD crossover not a standalone trade signal?
- What does it mean when the Histogram starts shrinking?
- How can you combine MACD with moving averages for better decisions?