# How MACD Works

A chart board in a quiet study draws a price, two moving averages, the MACD line, its signal line and histogram, one idea at a time

By Yan Kurniawan

Topic: Society & Business

[Open the interactive Jig](https://ask.jig.com/j/Iw7qVJYwNVS4)

## Guide

### 1. The wiggly price line

This pale line is a made\-up price: what something costs, day after day for 120 days\. It jiggles up and down all the time, so the bigger story is hard to see\. MACD is a tool that helps spot when a price is speeding up or slowing down\.

Toy numbers for learning only, not advice about buying or selling\.

### 2. Two smoother lines

An average blends many days into one calmer value\. The orange line averages roughly the last 12 days, so it follows the price closely\. The teal line averages roughly 26 days, so it moves slowly and lags behind\.

These are exponential moving averages, called EMAs for short\.

### 3. Recent days count more

In these averages, today counts the most and older days slowly fade away\. Each bar shows how much one day counts\. In the fast average today counts about 15 percent; in the slow one, only about 7 percent\.

That is why the fast line reacts quickly and the slow line takes its time\.

### 4. The gap is the MACD

Now subtract: fast average minus slow average\. The shaded gap is that difference, and the blue MACD line in the lower panel tracks it\. When the fast line is on top, MACD sits above the middle zero line; when it dips under, MACD drops below\.

MACD stands for Moving Average Convergence Divergence: the two averages coming together and pulling apart\.

### 5. A slower shadow

The red signal line is a 9\-day average of the blue MACD line itself\. It trails the blue line like a shadow\. When blue pulls away from red, the price is picking up speed in that direction\.

### 6. Bars show the race

Each bar is the blue line minus the red line\. Growing bars mean the push is getting stronger; shrinking bars mean it is fading\. A bar flips colour exactly where the two lines cross\.

### 7. Reading the crossings

When the blue line crosses up through the red line, upward momentum is building\. When it crosses down, momentum is turning lower\. Choose which crossings to mark on the chart\.

When MACD crosses the zero line, the fast and slow averages have swapped places\.

### 8. A rear\-view mirror

MACD is built only from past prices, so it always reacts a little late\. In flat, choppy stretches it can flip back and forth and give false alarms\. Gerald Appel created it in the late 1970s, and people still use it to read how strong a trend feels\.

Seeing momentum is not the same as seeing the future\.