MACD is a trend-following momentum indicator developed by Gerald Appel in 1979. It shows the relationship between two exponential moving averages (EMAs) of a security's price and is one of the most widely used indicators in technical analysis.
Three Components
Key Signals
Strengths
MACD combines trend identification (moving averages) with momentum measurement (crossovers and histogram), making it versatile. The histogram shrinking indicates momentum is fading even before a crossover occurs.
Limitations
As a lagging indicator (based on historical price data), MACD signals often come after a significant portion of a move has already occurred. In choppy, sideways markets, MACD generates many false crossover signals ('whipsaws'). The default 12-26-9 parameters may not suit all timeframes β intraday traders often use faster settings like 5-13-1.