What is the MACD indicator and how does it work?

The three parts

• MACD line. The 12-period EMA minus the 26-period EMA. When the fast average pulls away above the slow one, the line rises.
• Signal line. A 9-period EMA of the MACD line: a smoothed version of it.
• Histogram. The gap between the MACD line and the signal line, drawn as bars.
• Zero line. Where the 12 and 26 EMAs are equal.

Everything in MACD comes from closing prices and moving averages. That makes it a trend and momentum tool, with the lag that every average carries.

Crossovers and the zero line

When the MACD line crosses above the signal line, short-term momentum has turned up; a cross below means it has turned down. Where it happens matters.

A bullish cross above zero is in line with an existing uptrend: it often marks the end of a pullback. A bullish cross far below zero in a downtrend is often only a pause before the next leg down. A cross of the zero line itself means the 12 EMA has crossed the 26 EMA, a slower signal that the trend may be changing.

The histogram and divergence

The histogram shows the momentum of momentum. Bars that grow mean the move is speeding up. Bars that shrink while price still rises mean the push is fading, and the MACD line is getting closer to a cross.

Divergence works as it does with RSI. Price makes a higher high while the MACD peaks lower: bearish divergence. Price makes a lower low while MACD bottoms higher: bullish divergence. Treat both as warnings and wait for price structure to confirm.

On a quiet chart MACD and its histogram hover near zero and cross back and forth. That is a sign of a range, and crossovers there carry little weight.

A worked example

On 4h, EURUSD is in an uptrend: higher highs and higher lows, and MACD has stayed above zero. Price pulls back into support at 1.0815–1.0820. The histogram shrinks towards zero, then a bar turns higher, and the MACD line crosses back above the signal line while still above zero.

That is a confirmation, not the trade. The entry is a buy above the next 1h candle high at 1.0838; the stop goes below the zone, at 1.0805, which is 33 pips. At 0.5% risk on a $10,000 account, the most you lose is $50, so the volume is about 0.15 lots. Before you send, the ticket shows the money at the stop and what your daily loss limit would have left.

Add MACD in the Terminal

Open Indicators, choose Oscillators and add MACD. It appears in its own pane below the chart with the standard 12, 26, 9 settings.

Pair it with tools that measure something else, such as one moving average for direction and your support and resistance zones for location. MACD and RSI both measure momentum; using both rarely adds new information. You can add up to 8 indicators per chart, but a clean chart is easier to read under pressure.