MACD explained: the momentum indicator that actually works

June 4, 2026 · 5 min read

MACD (Moving Average Convergence Divergence) shows the relationship between two moving averages of a stock price. The three components: The MACD Line equals the 12-day EMA minus the 26-day EMA. The Signal Line is the 9-day EMA of the MACD Line. The Histogram shows the difference between MACD and Signal lines. The golden signal is the Bullish Crossover. When the MACD line crosses above the signal line, momentum is shifting from bearish to bullish. This is a buy signal. The earlier you catch this crossover, the more profit potential. The danger signal is the Bearish Crossover. When the MACD line crosses below the signal line, momentum is turning negative. Consider selling or tightening your stop loss. How TradewithAI uses MACD: We track 6 MACD states: bullish-cross, bullish, bullish-fading, bearish-cross, bearish, and bearish-fading. The most actionable are the crossovers because they signal the moment of change. MACD works best in trending markets. In sideways or choppy markets, it generates false signals. Always check if the stock is trending by looking at the SMA 200 before trusting MACD crossovers.