MACD is a technical indicator used to determine the strength of a trend, its direction, and potential reversals. It is based on the difference between two moving averages (EMA - exponential moving averages).
1. Components of MACD
MACD consists of three main components:
1️⃣ MACD line (yellow on the chart)
• Calculated as the difference between two moving averages:
MACD Line = EMA (12) - EMA(26)
• It shows how quickly the trend is changing.
2️⃣ Signal line (blue on the chart)
• This is EMA(9) of the MACD line.
• It is used to confirm signals (slower than the MACD line).
3️⃣ Histogram
• Visualizes the difference between the MACD line and the signal line.
• If the histogram rises above 0 - the trend is gaining strength.
• If the histogram is decreasing - the trend is weakening.
2. How to analyze MACD?
1. Crossover of the MACD line and the signal line
✅ Bullish signal (to buy) - when MACD crosses the signal line from bottom to top.
🙅♂️ Bearish signal (to sell) - when MACD crosses the signal line from top to bottom.
2. MACD above or below zero
• MACD > 0 → Upward trend.
• MACD < 0 → Downward trend.
3. Divergence
• Bullish divergence: if the price makes a new low and MACD rises → a possible reversal up.
• Bearish divergence: if the price rises and MACD falls → a possible reversal down.
3. Examples of MACD
🔹 Example 1: Bullish crossover (buy signal)
👉 When the MACD line (yellow) crosses the signal line (blue) from bottom to top - this is a signal to enter a buy.
🔹 Example 2: Bearish crossover (sell signal)
👉 When the MACD line (yellow) crosses the signal line (blue) from top to bottom - this is a signal to exit or open a sell.
🔹 Example 3: Divergence
👉 If the price rises and MACD falls - this is a warning of a possible reversal down.
