Reading the chart

MACD: is the momentum picking up or fading?

The MACD (Moving Average Convergence Divergence) has a long name for a simple idea: it compares a fast moving average with a slow one to show whether a move is gaining or losing speed. Turn it on with the MACD button and it gets its own panel under the chart, with three parts.

Equinor over six months with the MACD below: the blue MACD line, the orange signal line and the green and red bars.

The three parts

• The MACD line (blue) is the gap between a fast and a slow average of the closing price: the 12-candle average minus the 26-candle average. These are exponential averages, which give the newest prices more weight than the simple moving averages on the price chart.
• The signal line (orange) is a 9-candle average of the MACD line itself: a slower, smoother version of it.
• The bars (histogram) show the gap between the two lines. Green bars mean the MACD line is above the signal line, red bars that it's below. Taller bars mean a bigger gap.

Reading it

• Above zero: the fast average is above the slow one, so recent prices are higher than older ones: an upward drift. Below zero: a downward drift.
• Crossovers: when the MACD line crosses above the signal line (the bars turn from red to green), momentum has turned up. A cross below (green to red) means it has turned down. These crossovers are the signals most traders watch.
• Shrinking bars: when the bars get shorter, the move is losing speed even if the price is still going the same way. It's often the first thing to change before a turn.

Tip: The MACD is measured in kroner, not in percent, so its numbers can't be compared between stocks. A MACD of 2 on a 300-krone stock is small; on a 20-krone stock it's huge. Look at its shape and crossovers, not the level.

Divergence

Just like with the RSI, a divergence is when the price and the MACD disagree. If the price makes a new high but the MACD peaks lower than before, the latest rise had less momentum behind it. It's a warning sign that the trend is tiring, not a timer for when it ends.

Try it

Open Equinor with the MACD on

Find the moments the bars changed from red to green. How far had the price already moved by then? Then switch the range to 1Y and compare: on a longer view you can see how often crossovers were followed by a real trend, and how often by nothing.

Where it misleads

The MACD is built from moving averages, so it always lags: by the time the lines cross, part of the move has already happened. In a sideways market the lines cross back and forth all the time, and most of those crossovers lead nowhere. It works best when a trend is under way, as a way to see whether it's speeding up or slowing down.

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