MACD — Moving Average Convergence Divergence
MACD is a trend and momentum indicator built from the difference between two exponential moving averages. Invented by Gerald Appel in the 70s, it remains one of the most widely used tools to spot momentum shifts without overweighting one-off moves.
Definition and formula
MACD has three components:
MACD line = EMA(12) − EMA(26)
Signal = EMA(9) of the MACD line
Histogram = MACD line − Signal
Signal = EMA(9) of the MACD line
Histogram = MACD line − Signal
Standard parameters are 12, 26, 9. Cash Scanner uses these defaults on the daily scan. The histogram represents the gap between the two lines — it anticipates crossovers.
How to read MACD
Crossovers (main signals)
- Bullish crossover: the MACD line crosses above the Signal line. Indicates an upward momentum shift. Classic buy signal.
- Bearish crossover: the MACD line crosses below the Signal line. Indicates a downward momentum shift. Take-profit or sell signal.
- MACD > 0: bullish trend (EMA12 > EMA26).
- MACD < 0: bearish trend (EMA12 < EMA26).
The histogram
The MACD histogram is the most reactive component:
- Histogram positive and growing: bullish momentum accelerating. Aggressive buying phase.
- Histogram positive and shrinking: still bullish trend but losing steam. Watch for the next bearish crossover.
- Histogram negative and shrinking: bearish momentum accelerating. Selling phase.
- Histogram negative and growing back: still bearish but exhausting. Prepare for a technical rebound.
MACD divergences
Like RSI, MACD gives its best signals in divergence with price:
- Bullish divergence: new low in price, higher low on MACD. Reversal signal incoming.
- Bearish divergence: new high in price, lower high on MACD. Exhaustion signal.
How Cash Scanner uses MACD
MACD contributes to the /100 score from three angles:
- Trend score: MACD > 0 boosts the score in Momentum mode (confirmation of persistent bullish trend).
- Recent crossover: a bullish crossover within the last 5 days is valued (fresh, still-actionable signal).
- MACD divergence: component of the confluence. If 3+ indicators diverge bullishly at the same time (MACD, RSI, Stochastic, Williams %R), the confluence bonus triggers.
Limits and common pitfalls
- Intrinsic lag: MACD uses EMAs over 12 and 26 periods. On sharp reversals (gap, news), it signals too late. Complement with a faster indicator (RSI, Williams %R).
- False crossovers in range: in a sideways market, MACD oscillates around 0 and multiplies false signals. Filter by ADX > 25 to only consider MACD in established trends.
- Cross-asset comparisons forbidden: the absolute MACD value depends on the asset price. Comparing AAPL's MACD (180€) to XYZ's (5€) makes no sense. Always reason in relative terms (crossover, divergence, sign).
- Parameters 12-26-9 aren't sacred: on 1h day-trading, shorter parameters (5-13-5) capture quick reversals better. Cash Scanner stays on 12-26-9 to align with daily swing trading.