Indicator
MACD (Moving Average Convergence Divergence)
MACD measures the distance between a fast and a slow exponential moving average. A signal line — an EMA of that distance — and a histogram of the gap between them are plotted alongside it.
The quicker of the two averages.
The slower average. Must exceed the fast one to be meaningful.
Smoothing applied to the MACD line itself.
Chart runs on a generated sample series, not live or historical exchange data. Values are computed with the same functions CernoQuant uses to run backtests.
How it is calculated
How to read it
- The MACD line rising means the fast average is pulling away from the slow one; falling means they are converging or the fast has dropped below.
- The histogram shows how far the MACD line sits from its own signal line, so it changes sign slightly before the two lines visibly cross.
- Because every component is an average of averages, the whole construction lags. A crossover confirms movement that has already occurred.
What it does not tell you
- It is built entirely from moving averages, so it inherits all of their lag and adds a layer of its own.
- In range-bound conditions the lines cross repeatedly around zero, generating frequent changes that describe noise.
- It is unbounded, so absolute MACD values are not comparable across instruments with different price levels or volatility.
Common settings
12, 26 and 9 are the standard lengths and appear as defaults on nearly every platform. They come from Gerald Appel’s original work rather than from ongoing optimisation.
Frequently asked questions
What does a MACD crossover mean?
It means the MACD line has moved from one side of its signal line to the other, which is a statement about the recent relationship between two moving averages. Because averages lag, the crossover describes movement that has already taken place.
What does the MACD histogram show?
The distance between the MACD line and its signal line. It approaches zero as the two converge and changes sign at the moment they cross.
Why are 12, 26 and 9 the defaults?
They are the lengths Gerald Appel used when he developed the indicator, and platforms adopted them as defaults. Their prevalence is historical convention rather than evidence of superiority.
Does MACD work in sideways markets?
It produces frequent crossovers when price is range-bound, because the two averages repeatedly converge and separate without net movement. Those crossings describe noise rather than direction.
Related
- Exponential Moving Average (EMA) — Indicator
- Relative Strength Index (RSI) — Indicator
- Lagging vs Leading Indicators — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
Indicators describe the market. A journal describes you.
Knowing how RSI is calculated is the easy part. The harder question is whether you actually followed your own rules — CernoQuant reads your executed trades and measures the gap between what you intended and what you did.
See your own patterns →