What is the MACD Indicator?

MACD (Moving Average Convergence Divergence) is a momentum + trend-following indicator. Using it, traders can compare two exponential moving averages (EMAs) to examine changes in price momentum. 

As per general market understanding, the MACD indicator consists primarily of:

• MACD Line: Difference between the 12-period EMA and 26-period EMA.
• Signal Line: 9-period EMA of the MACD line.
• Histogram: Displays the difference between the MACD line and signal line.

How to Develop a MACD Trading Strategy?

Several traders develop a MACD trading strategy by analysing the:

• “Crossovers” between the MACD and signal lines
• Movements around the zero line, and 
• Divergences between price and MACD.

Generally, when the MACD line moves above the signal line, it can potentially indicate increasing “upward momentum”. In contrast, when it moves below the signal line, it can indicate increasing “downward momentum”. However, note that crossovers can even produce false signals, particularly when prices move sideways.

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