Technical & Chart AnalysisMoving Average Convergence Divergence
MACD
A momentum indicator built from the difference between the 12 and 26 period EMAs, with a 9-period signal line.
What MACD means
MACD, short for moving average convergence divergence, is a momentum indicator built from two exponential moving averages. The MACD line is the 12-period EMA minus the 26-period EMA, so it is positive when short-term momentum leads the longer-term average and negative when it lags. A 9-period EMA of the MACD line forms the signal line, and the histogram plots the difference between the two. Unlike a bounded oscillator the MACD has no fixed upper or lower limit, so its readings are compared with the instrument's own history rather than absolute thresholds.
Three signals are conventional: a MACD line crossing its signal line, a cross of the zero line indicating that the two underlying averages have swapped order, and divergence between the MACD and price at swing extremes. The histogram is watched as an early warning, since it contracts before a crossover occurs. The core limitation is that MACD is a lagging construction of two lagging averages, so crossovers arrive after a move is underway and cluster into repeated false signals when a market is ranging.
Worked example
With EUR/USD at 1.0870, the 12-period EMA reads 1.0862 and the 26-period EMA 1.0848, giving a MACD line of +0.0014; with the signal line at +0.0009 the histogram is +0.0005 and rising.
Related terms
- Exponential Moving Average (EMA)A moving average that weights recent prices more heavily, so it reacts faster to new information than an SMA.
- DivergenceA disagreement between price and an indicator, where one makes a new extreme that the other fails to confirm.
- MomentumThe rate at which price is changing, used to judge whether a move is accelerating or losing force.
- OscillatorAn indicator that fluctuates around a centre line or within fixed bounds, used mainly to gauge momentum extremes.
- RSI (Relative Strength Index)A momentum oscillator that measures the speed and magnitude of recent price changes on a 0 to 100 scale.
Frequently asked questions
What does MACD mean in forex trading?
A momentum indicator built from the difference between the 12 and 26 period EMAs, with a 9-period signal line.
How does MACD work in practice?
Three signals are conventional: a MACD line crossing its signal line, a cross of the zero line indicating that the two underlying averages have swapped order, and divergence between the MACD and price at swing extremes. The histogram is watched as an early warning, since it contracts before a crossover occurs. The core limitation is that MACD is a lagging construction of two lagging averages, so crossovers arrive after a move is underway and cluster into repeated false signals when a market is ranging.
What is an example of MACD?
With EUR/USD at 1.0870, the 12-period EMA reads 1.0862 and the 26-period EMA 1.0848, giving a MACD line of +0.0014; with the signal line at +0.0009 the histogram is +0.0005 and rising.
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