If you’re learning to trade and you’ve started digging into indicators, you’ll probably hear the MACD mentioned a lot – and for good reason.
It’s one of the best tools out there for spotting shifts in momentum, trend direction, and potential entries and exits.
At Brew Trades, I’m all about keeping it real and simple – so let’s break down exactly what the MACD does and how you can actually use it when trading.
What is the MACD?
MACD stands for Moving Average Convergence Divergence.
Sounds fancy – but it’s actually pretty straightforward.
At its core, the MACD is all about showing the relationship between two moving averages of price:
- A fast EMA (usually 12-period)
- A slow EMA (usually 26-period)
The MACD plots the difference between those two moving averages. When the fast EMA is above the slow EMA, the MACD line is positive. When it’s below, the MACD line turns negative.
It also uses a signal line (typically a 9-period EMA of the MACD line) to help highlight crossovers – and that’s where some of the real magic happens.
How the MACD Looks on a Chart
On your trading platform, the MACD is usually shown as:
- Two lines: The MACD Line and the Signal Line
- A histogram: Bars that show the difference between the MACD Line and the Signal Line (it looks like little waves going above and below zero)
It looks like a mini ocean sitting below your main chart – and once you get used to reading it, it’s super intuitive.
How to Use the MACD in Trading
Here’s the simple stuff I personally look for when using MACD:
1. MACD Line Crosses Signal Line
- Bullish crossover: MACD Line crosses above Signal Line – could signal a buy opportunity.
- Bearish crossover: MACD Line crosses below Signal Line – could signal a sell or short setup.
These crossovers are basically little nudges that momentum is shifting.
2. MACD Above or Below Zero Line
- When the MACD Line is above zero, it suggests an uptrend (buyers are stronger).
- When it’s below zero, it suggests a downtrend (sellers are stronger).
Bonus Tip: Crossovers that happen above zero are stronger buys. Crossovers below zero are stronger sells.
3. Divergence (Momentum Warnings)
- Bullish divergence: Price is making lower lows, but MACD is making higher lows – momentum might flip back to the upside soon.
- Bearish divergence: Price is making higher highs, but MACD is making lower highs – momentum might be fading, and a reversal could be brewing.
Divergence is super powerful – it’s like seeing the market running out of gas before it even stops.
MACD in Real Trading (My Take)
I love the MACD because it adds context without being noisy.
- It’s not about trading every crossover blindly.
- It’s about using MACD with structure, VWAP, EMAs, and price action to stack the odds.
If I see a VWAP rejection, an EMA breakdown, and a MACD bearish crossover all at once – that’s when I know a setup is brewing nicely.
It’s about reading the bigger story, not just reacting to a flashing signal.
Quick Recap
| Term | Meaning |
|---|---|
| MACD Line | Difference between fast and slow EMAs |
| Signal Line | EMA of the MACD Line |
| Histogram | Visual difference between MACD and Signal Line |
| Above Zero | Bullish strength |
| Below Zero | Bearish strength |
| Divergence | Warning of trend shift |
Final Brew
The MACD isn’t about predicting the future – nothing in trading is.
It’s about seeing when the gears are shifting, so you can jump into trades with better timing and confidence.
Stack it with your other tools, stay patient, and the setups will brew themselves.
Happy trading and as always, trust the brew.
Why not checkout my other articles on Indicators?