MACD: a race between two averages
MACD tracks the gap between a fast and a slow average; the lines crossing shows momentum changing direction, and the histogram shows the strength of that change.
In the panel below the chart you see two lines and a series of green and red bars. The grey line is the MACD line: the difference between price's fast 12-candle average and its slow 26-candle average. The orange line is the signal line: a 9-candle average of the MACD line. The bars (histogram) show the distance between these two lines.
The idea is simple: when price speeds up, the fast average pulls away from the slow one and MACD grows. When price slows down, the two averages come closer and MACD shrinks. So MACD does not track price itself, it tracks its momentum.
When the grey line crosses the orange line from below, momentum has turned up; the histogram flips from red to green. When it crosses from above, momentum has turned down. The zero line in the middle of the panel matters too: if MACD is above zero, the fast average is above the slow one, meaning the short-term bias is up.
Find the places on the chart where the lines cross and compare them with price. After some crossings price really changed direction; after others nothing happened. In a flat, tight market especially, the lines cross often and most of those crossings come to nothing.
MACD's numeric value depends on the size of the price: the MACD of a 3-lira stock and that of a 300-lira stock cannot be compared directly. So read MACD as a shape, not a number: are the lines opening or closing, which side of zero are they on, is the histogram growing or shrinking?
How to read it
- Look at the cross: the grey line crossing the orange one upwards shows momentum turning up; crossing downwards shows it turning down.
- Look at where the cross happens: an upward cross below zero says a decline is slowing, an upward cross above zero says an advance is speeding up again.
- Watch the histogram's height: if the bars start shrinking, current momentum is fading; this often shows up before the cross.
- Do not trust crosses in a flat market: if price is moving back and forth in a narrow range, the lines cross constantly and most signals fail.
In this state right now
Liquid symbols whose MACD line on the daily chart has just moved above the signal line while still below zero — an early hint that a decline is slowing, not a confirmation.
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We measured
We studied about 80,000 MACD reversal signals on 32 crypto pairs. In roughly half of them, price moved further in the opposite direction after the signal. The direction of a single-candle reversal signal was almost a coin toss, and we could not reliably tell good signals from bad ones by looking at the signal's own features.
Source: BBL measurement bench: 32 crypto pairs, 4 hour / 1 hour / 15 minute, MACD 12/26 turning points ·
Trap
The most common mistake is treating every cross like a buy or sell order. Because MACD is derived from averages it lags: by the time a cross appears, part of the move has already happened. In a flat market it produces false signals one after another. Use MACD not as a trigger on its own, but as a second pair of eyes reading momentum next to the trend and the levels.
Tip
In any analysis you can see these lines by switching the lower panel of the evidence card to ‘MACD’. The ‘MACD Bullish Cross’ list in the screener shows symbols whose line is above the signal and close to zero.
Glossary
- MACD line
- The difference between the 12-candle and 26-candle exponential averages.
- Signal line
- A 9-candle average of the MACD line.
- Histogram
- Bars showing the distance between the MACD line and the signal line.
Mini quiz
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