What it is
Gerald Appel created MACD in the late 1970s, and Thomas Aspray added the histogram in 1986. It turns two moving averages into one line that swings around zero, so you can see momentum building and fading.
The zero line is where the two averages cross on the price chart. The signal line is a smoothed copy of MACD, and the histogram is MACD minus the signal line: it shrinks before a signal cross happens, which is why traders watch it for early warning.
How it is calculated
MACD line = EMA of close over 12 candles minus EMA of close over 26 candles. Signal line = 9 period EMA of the MACD line. Histogram = MACD line minus signal line.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| fast | 12 | 1 to 200 | Length of the fast EMA. Shorter makes MACD more responsive. |
| slow | 26 | 2 to 400 | Length of the slow EMA. |
| signal | 9 | 1 to 100 | Length of the EMA that smooths MACD into the signal line. |
How to read it
How to trade it
- 1
On a 1 hour gold chart, trade only in the direction of MACD versus zero: above zero, look for longs.
- 2
Entry trigger: during a pullback, MACD dips towards its signal line and crosses back above it while still above zero. Enter on that candle's close.
- 3
Stop below the pullback low, often 10 to 20 points on gold 1 hour.
- 4
Target 2 times the stop, or exit when MACD crosses below its signal line.
- 5
On US30 at 15 minutes, the same rules give more frequent trades; use the index's ATR for the stop size.
A close below the pullback low, or MACD falling back below zero, cancels the long. A signal line cross against you is the earlier warning.
On WickSpeak, MACD writes a plain-English reading on the live candle: where it is against zero and its signal line, what the histogram is doing, how to trade it and what would prove it wrong. In Playbook you can test: crosses above or below zero, crosses above or below its signal line, is above or below zero, histogram is rising or falling, is above or below a level, or is between two levels.
WickSpeak also has its own version, the WickSpeak MACD. The line is coloured by strength: faint when the reading is weak, glowing when it is strong, mint above its middle line (zero) and pink below it. A cross of the middle line is marked only once the candle has closed, so a marker never vanishes after you have seen it. A gold marker shows a stretched reading, meaning the strongest few percent of its own range or past a fixed level. Divergences between price and the oscillator are drawn on both the chart and the indicator, and a chip shows the same reading on a higher timeframe.
Best markets and timeframes
Works on every market. For gold, US30 and NAS100 it is most used on 15 minute to daily charts; on 1 minute charts the signal line crosses too often.
Common mistakes
- Taking every signal line cross, including those in a flat market around zero.
- Reading MACD values across markets; the number depends on the price scale, so compare it only with itself.
- Treating divergence as an entry without a price break.
Works well with
Questions traders ask
What are the best MACD settings?
12, 26 and 9 is the standard. Some day traders use faster settings such as 5, 35, 5 or 8, 21, 5. Test changes on your market before trusting them.
What does a MACD crossover mean?
When MACD crosses above its signal line, short term momentum is turning up; below, it is turning down. Crosses above zero carry more weight in an uptrend than crosses below zero.
What does the MACD histogram show?
The gap between MACD and its signal line. Growing bars mean momentum is accelerating; shrinking bars mean it is fading, often before the lines cross.
Is MACD a leading or lagging indicator?
It is lagging, because it is built from moving averages. The histogram turns earlier than the line crosses, but still follows price.