The primary method of interpreting the MACD is with moving average crossovers. When the shorter-term 12-period exponential moving average (EMA) crosses over the longer-term 26-period EMA a potential buy signal is generated; this is seen on the Nasdaq 100 exchange traded fund (QQQQ) chart below with the two purple lines.
Remember that the MACD line (the blue line) is created from the 12-period and 26-period EMA. Consequently:
- When the shorter-term 12-period EMA crosses above the longer-term 26-period EMA, the MACD line crosses above the Zero line.
- When the 12-period EMA crosses below the 26-period EMA, the MACD line crosses below the Zero line.
Moving Average Crossover Potential Buy Signal
A possible buy signal is generated when the MACD (blue line) crosses above the zero line.
Moving Average Crossover Potential Sell Signal
When the MACD crosses below the zero line, then a possible sell signal is generated.
The prior potential buy and sell signals might get a person into a trade later in the move of a stock or future. Another potential buy and sell signal is shown in the graph below of the Nasdaq 100 exchange traded fund QQQQ:
Most Common MACD Potential Buy and Sell Signals
MACD Potential Buy Signal
A potential buy signal is generated when the MACD (blue line) crosses above the MACD Signal Line (red line).
MACD Potential Sell Signal
Similarly, when the MACD crosses below the MACD Signal Line a possible sell signal is generated.
The MACD moving average crossover is one of many ways to interpret the MACD technical indicator. Using the MACD histogram and MACD divergence warnings are two other methods of using the MACD