TIP: As long as the MACD lines are above 0 and price is above the 12 and 26 EMAs, the trend is still going on.ĭuring ranges, the two lines from your MACD are very close together and they hover around 0 this means that there is no momentum and no strength.Īt point #1, the price also formed a narrow range and when the price breaks out, the two indicator lines pull away from the 0 line and also separate each other. Thus, when you are in a strong trend, don’t get confused by too many crossings of the MACD lines. However, the MACD is an oscillator and during very strong trends, it won’t give very accurate information. When the two lines are coming closer to each other, it shows that price is losing strength. When you see the two MACD indicator lines move away from each other, it means that momentum is increasing and the trend is getting stronger. So, whenever the MACD Line crosses 0, it shows that momentum is changing and potentially a new trend is just being created. As I said above, the MACD is thus its own moving average crossover system in just one line.Īs we know from our moving averages article, a cross of 2 MAs shows a change in momentum and it can often foreshadow the creation of a new trend. When the two MAs cross, the MACD line crosses below 0 as well.
There are 2 MACD signals in particular that we will explore in this article and explain step by step how to use the MACD to find trades:īesides the MAXD lines, I also plotted the two moving averages on the charts and it becomes obvious immediately how the MACD works.
The histogram is derived from the other two components of the MACD and, thus, don’t add as much explanatory value to overall MACD trading.Īs I said, the MACD is based on moving averages ad this means that it’s ideal for analyzing momentum, finding trend-following entries and staying in trends until momentum is dying off. In this article, we focus on the MACD and the signal line in particular. Signal Line: The Signal line is the 9-period EMA of MACD Line This means that the MACD line is basically a complete moving average crossover system by itself.
MACD Line: The MACD line is the heart of the indicator and by default it’s the difference between the 12-period EMA and the 26-period EMA.
In this article, we will explain what the MACD indicator does, how it helps you analyze price and how to use it in your own trading.įirst, let’s take a look at the individual components of the MACD indicator: The MACD is a popular momentum and trend-following indicator that is based on the information of moving averages and, thus, ideal to act as an additional momentum tool and momentum filter for your trading.