The MACD

The MACD is a trend indicator, which shows the direction of the trend and the strength of it. On the image below we can see a 12-26 configuration MACD, this means that the indicator is using a 12 period moving average and a 12 period moving average to determine the direction and strength of the trend by measuring the distance between these two moving averages. The blue line on the chart is the MACD line and the red-dotted line is the signal line. When the MACD line crosses below the signal line it means that the trend has changed to the downside and when the MACD line crosses above the signal line, it means that the trend has changed to the upside.

The green bars make up the histogram and the histogram tells us how strong the trend is. The larger the bars are, the stronger the trend. If the bars are pointing down, it means that the trend is bearish and vice versa. The histogram can tell us ahead of time if the trend is losing momentum.