MACD (Moving Average Convergence Divergence)

MACD (Moving Average Convergence Divergence)

MACD tracks the relationship between two moving averages of the price to show whether momentum is building or fading.

The three parts

1. The MACD line — the 12-day exponential moving average minus the 26-day. When it is positive, the short-term average is above the long-term one.
2. The signal line — a 9-day average of the MACD line itself.
3. The histogram — the MACD line minus the signal line. This is the part IQInvest scores.

How to read it

• Histogram positive — conventionally read as bullish: momentum is building.
• Histogram negative — conventionally read as bearish: momentum is fading.
• A crossover — the MACD line crossing its signal line is the classic entry or exit trigger.

The word *conventionally* is doing real work there. These are widely followed conventions, not laws. Part of why they sometimes appear to work is precisely that so many people watch them.

The honest limitation

MACD is built entirely from past prices, so it is descriptive, not predictive. It tells you what momentum has been doing, and it lags by construction — both averages need time to react.

It is also unreliable in a sideways market, where it produces frequent crossovers that lead nowhere. This is why IQInvest checks ADX alongside it: ADX below about 20 means there is no real trend for MACD to describe.

Related

• ADX measures whether a trend exists at all.
• RSI measures whether a move has gone too far, too fast.