Encyclopedia Classification
Category: Technical Indicators • Trend Analysis • Momentum Oscillators
Discipline: Technical Analysis • Trend Following • Momentum Analysis • Signal Confirmation
Prerequisites
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Article 161 — Trend Analysis: How Professionals Identify Trend Strength, Weakness, and Reversals
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Article 164 — The Relative Strength Index (RSI): Measuring Momentum, Divergence, and Market Strength
Related Articles
Moving Averages • RSI • Stochastic RSI • Momentum Indicators • Volume Analysis • Trend Analysis
Definition
The Moving Average Convergence Divergence (MACD) is a momentum and trend-following indicator that measures the relationship between two exponential moving averages (EMAs) to identify changes in momentum, trend strength, and potential reversals.
Developed by Gerald Appel in the late 1970s, the MACD has become one of the most widely used indicators in technical analysis.
Unlike RSI, which measures the speed of price movement, MACD focuses on the relationship between trend and momentum.
Beginner Explanation
Imagine two cars traveling on a highway.
One car represents short-term momentum.
The other represents long-term momentum.
If the faster car begins pulling away, momentum is increasing.
If the faster car slows and the gap narrows, momentum is weakening.
The MACD measures this changing relationship.
Instead of simply asking:
"Is price rising?"
MACD asks:
"Is momentum accelerating or decelerating relative to the trend?"
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