MACD
The gap between a fast and a slow EMA, with its own average and a histogram of the difference.
6 minLesson 7 of 102 questions at the end
Key ideas
- 1The MACD line is the 12-candle EMA minus the 26-candle EMA. Above zero, the short-term average is over the long-term one.
- 2The Average line is a 9-candle EMA of the MACD line. The histogram is the gap between the two.
- 3A growing histogram means momentum is building in that direction; a shrinking one means it is fading.
- 4MACD is built from averages, so it lags. Crosses come after the move has started.
How it works
Formula
MACD = EMA(12) − EMA(26)
Average = EMA(9) of MACD
Histogram = MACD − Average
Average = EMA(9) of MACD
Histogram = MACD − Average
Lance Trade’s chart calls the 9-candle EMA of MACD its Average line.
MACD
Made-up candles. The histogram grows while momentum builds and shrinks as it fades.
Made-up 1h candlesWorked out like Lance Trade’s chart
O 86,843H 87,700L 86,823C 87,501MACD 270.9Average −202.1Histogram 472.9
Fast length12
Slow length26
Average length9
Reading it
- MACD above zero: the short-term average is above the long-term one.
- MACD crossing its Average: momentum is changing direction, after the price has moved.
- Histogram bars growing: momentum building. Shrinking: fading.
What it can’t do
MACD is built from averages of averages, so it is late by design. In sideways markets its lines cross constantly and each cross means little.
Common mistakes
- Trading every cross of the two lines. In a sideways market they cross constantly.
- Forgetting that MACD’s values are in price terms, so they look very different on BTC and a small coin.
Check yourself
Question 1 of 2
The MACD line is above zero. What does that mean?
Keys 1 to 3 pick an answer, Enter checks it
Try it in Lance
Add MACD from Indicators to see the two lines and the histogram in a pane under the chart.
Add MACD