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MACD (Moving Average Convergence Divergence) Explained
MACD is a trend-following momentum indicator that reveals the relationship between two moving averages. It provides crossover signals, histogram momentum, and divergence warnings. Learn how we use MACD in the Macro Model and Timing Model.
What it does
MACD combines trend-following and momentum in one indicator. The convergence and divergence of the MACD line and signal line generate buy/sell signals; the histogram often gives early warning of momentum shifts before crossovers. Key signals: Bullish cross (MACD crosses above signal line = buy signal), Bearish cross (MACD crosses below = sell signal), Divergence (price and MACD move in opposite directions = warning).
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Use MACD for short-term momentum and crossover signals. Combine with other indicators for 5-day predictions.
Run Timing ModelHow it works
MACD line = 12-period EMA − 26-period EMA. Signal line = 9-period EMA of the MACD line. Histogram = MACD line − Signal line. The histogram often changes direction before the MACD line crosses the signal line, giving early warning. MACD crossing zero indicates the 12-EMA crossing the 26-EMA and often marks trend changes.
Key components
- MACD line: Difference between 12- and 26-period EMAs—momentum direction and strength
- Signal line: 9-period EMA of MACD—trigger for buy/sell when MACD crosses it
- Histogram: MACD − Signal—early warning of momentum changes
- Zero line: Where MACD = 0 (12-EMA = 26-EMA)—often marks trend changes
How we use it
For short-term (5-day): bullish/bearish crossovers give entry/exit signals; histogram shifts help anticipate crossovers; price/MACD divergences signal reversal opportunities; MACD crossing zero confirms trend direction. For long-term (12-month): we use MACD for cycle analysis, regime shifts, and sector allocation timing alongside other indicators.
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Sign UpFrequently Asked Questions
What is MACD?
MACD (Moving Average Convergence Divergence) is a momentum indicator with three parts: the MACD line (12-EMA minus 26-EMA), the signal line (9-EMA of MACD), and the histogram (difference between them). Bullish and bearish crossovers generate buy/sell signals; the histogram often leads crossovers for early warning.
How do you use MACD in the Macro Model and Timing Model?
We use MACD for short-term crossover and divergence signals and for long-term cycle and regime analysis. It helps time entries/exits and supports sector allocation and trend confirmation in both models.
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