MACD: reading the distance between two averages

MACD stands for Moving Average Convergence Divergence, which is a heavy name for a simple measurement: the gap between a fast exponential moving average (12 periods) and a slow one (26 periods). When the fast average pulls away above the slow one, the MACD line rises. When they converge, it falls toward zero.

The signal line is a 9-period average of the MACD line itself — a smoothed version of the gap. The histogram is the difference between those two: MACD minus signal. So the histogram is a second derivative of sorts, measuring whether the gap is currently widening or narrowing.

The MACD line above zero means the fast average is above the slow one — price momentum has been positive over the medium term. The MACD line above its signal line means that condition is currently strengthening rather than fading. A positive histogram says the same thing in a form that is easier to see at a glance.

Because every component is built from moving averages, everything MACD reports has already happened. Its value is in compressing 'is the trend gaining or losing steam' into one panel, not in calling turns early. In a sideways market the MACD line oscillates around zero and crossovers come thick and fast, which is precisely when they are least informative.

Traders often watch for divergence — price making a higher high while MACD makes a lower high, or vice versa. It is a genuinely interesting pattern, but detecting it mechanically requires deciding what counts as a 'high', over what window, with what tolerance. Those choices are where rule-based detection generates false positives at a high rate.

This site scores MACD only on its unambiguous states — position relative to zero, to the signal line, and the sign of the histogram — and leaves divergence to the reader looking at the chart. That is a deliberate limit, not an oversight.