Welcome back to the Chart Decoder Series, your step-by-step guide to mastering technical indicators and chart patterns like a pro.
In the previous post, we covered SMA and EMA, two essential tools for understanding trend direction. Now, let’s talk about momentum. Specifically, how to spot momentum shifts before they show up in price.
Enter: MACD (Moving Average Convergence Divergence).
MACD stands for Moving Average Convergence Divergence. In simpler words, MACD is a momentum indicator. It shows whether the market is gaining steam in a direction or losing strength. In other words: “Is the market about to make a move?”
While moving averages help you see where the market is going, MACD tells you how strong that move is. It’s one of the fastest ways to spot early signs of trend shifts, before the price fully reacts.
It’s made up of three parts:
Think of this as your momentum tracker.
It reacts when prices start changing direction showing if the market is gaining energy or slowing down.
This line follows the MACD Line closely.
These bars show the distance between the blue and orange lines.
Here’s how to read them:
MACD is great for identifying potential entry and exit points. It tells you:
Pro Tips:
Combine MACD with EMA or SMA for stronger confirmation
Use MACD crossovers near key support/resistance for higher accuracy
Avoid relying solely on MACD in sideways markets—it may give false signals
Bullish Signal: MACD Line crosses above Signal Line
Bearish Signal: MACD Line crosses below Signal Line
Histogram Bars Growing: Trend is gaining momentum
Histogram Bars Shrinking: Trend is slowing down
This practice builds your intuition over time, so you can act with confidence, not confusion.
MACD is a favorite among traders for a reason: it offers early insights into shifts in momentum before they’re obvious in price action.
Coming up next in our Chart Decoder Series: RSI – How to Know When a Market’s Overbought or Oversold.
The post <strong>Chart Decoder Series: MACD – The Momentum Signal to Spot Early Entries</strong> appeared first on Bitfinex blog.