MACD dates back to the 1970s when it was developed by Gerald Appel. It’s a technical indicator used by chartists to keep track of trend and momentum changes.
MACD works by charting the movements of two moving averages and their relationship to one another. The first is called the M.A.C.D line, which is calculated by subtracting one exponential moving average from another (12 periods from 26 periods).
The second line is called the signal line and is calculated by taking a 9 period exponential moving average of the initial M.A.C.D line. When the M.A.C.D line crosses above the signal line, it’s considered a bullish signal.
When it crosses back down through the M.A.C.D line it’s considered a bearish signal. MACD traders also look for divergences between the M.A.C.D and the price action as an early signal that the current trend is beginning to break down.