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What Is MACD and How to Use It to Identify Trend

The momentum indicator based on the difference between two moving averages — what the signal line is, what a 'crossover' means, and why it tends to lag price.

The definition

MACD (Moving Average Convergence Divergence) is calculated from the difference between two exponential moving averages (typically 12 and 26 days) of a stock's price. A positive result means the shorter average is above the longer one (upward momentum); a negative result means the reverse.

The signal line and crossovers

Alongside the MACD line itself, a 'signal line' is calculated (a 9-day moving average of the MACD). When MACD crosses above the signal line, it's considered a positive signal; crossing below is considered negative. The histogram (the difference between the two lines) visually shows how strong that gap is.

The limitation: a lagging indicator

MACD is based on moving averages, which by nature 'lag' behind the actual price — it identifies a trend that has already begun, it doesn't forecast a future one. In a range-bound market (no clear trend), MACD tends to produce frequent false crossovers that don't lead to any meaningful move.

How StockIQ uses MACD

MACD is part of the 23 indicators in the Technical Analysis category (25% of the score) — checked together with RSI, moving averages, and trading volume, so no single indicator (including MACD) determines the technical score alone.

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