Moving Average Convergence Divergence (MACD) is a technical analysis tool that uses past pricing events to gauge the strength, momentum and duration of a current pricing trend. A MACD indicator is comprised of a MACD line, a signal line, and a histogram, all plotted on the same axes. The MACD line represents the difference between the 12-period and 26-period exponential moving averages (EMA), both of which are a series of averages based on differing subsets of a full set of pricing data. The signal line displays the 9-period EMA of the MACD line itself. Finally, the histogram plots the difference between the MACD and signal lines at any given point.
Increases in the height of the histogram occur when the price of an asset is moving strongly in a direction, and the slope of the MACD line indicates the direction in which the price is moving. A potential buy signal is triggered when the MACD line crosses above the signal line, and a potential sell signal is triggered when the MACD line crosses below the signal line.
Lastly, it should be noted that, while 12-, 26- and 9-period EMA’s are typically used in MACD indicators, the length of these EMA periods can be adjusted to fit one’s trading practices.