The MACD indicator (Moving Average Convergence Divergence) is a popular technical analysis tool used in trading to identify the strength, direction, and momentum of a stock’s trend. It works by comparing two exponential moving averages (EMA) — usually 12-day and 26-day — to generate signals that help traders decide when to buy or sell.
What does MACD mean in trading?
MACD stands for Moving Average Convergence Divergence. It is a tool that helps traders spot trend changes and momentum in stock prices. It compares two moving averages — the 12-day EMA and 26-day EMA — and plots them on a chart. It also includes a 9-day EMA signal line to show buy or sell opportunities.
How does MACD work in stock trading?
MACD works by measuring the distance between two EMAs (12 and 26-day). When the shorter EMA rises above the longer one, it signals upward momentum.
- The MACD line = 12-day EMA − 26-day EMA
- The Signal line = 9-day EMA of the MACD line
A crossover between these lines shows buy or sell signals. The MACD histogram shows the strength of this movement using bars.
What is a MACD crossover signal?
A MACD crossover happens when the MACD line crosses the signal line:
- If the MACD line crosses above the signal line, it gives a buy signal.
- If the MACD line crosses below the signal line, it gives a sell signal.
This signal is more reliable when it matches the overall market trend.
What is the MACD histogram and how to use it?
The MACD histogram shows the difference between the MACD line and the signal line.
- Taller bars = Strong momentum.
- Smaller bars = Weakening momentum.
When the bars change direction, it may indicate a change in the trend. This helps traders confirm or exit trades earlier.
Can MACD be used for intraday and long-term trading?
Yes, MACD can be used for both intraday and long-term trading.
- For **intraday trading**, use short timeframes like 5-minute or 15-minute charts.
- For **long-term trading**, use daily or weekly charts.
MACD helps all types of traders by giving clear signals of momentum and trend direction.
What are the benefits of using MACD in trading?
MACD is one of the most useful indicators because:
- It gives early buy/sell signals.
- It shows trend strength and direction.
- It works well with other indicators like RSI or support/resistance.
- It can be used in any market — stocks, futures, or crypto.
It is simple to understand and perfect for both beginners and experienced traders.
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