What the three parts measure.
- MACD line: the 12-period EMA minus the 26-period EMA. Above zero, short-term momentum is stronger than long-term.
- Signal line: a 9-period EMA of the MACD line, used to time crosses.
- Histogram: the distance between the two lines. Shrinking bars mean momentum is fading.
The signals traders use.
- Signal-line cross: MACD crossing above the signal line is bullish, below is bearish.
- Zero-line cross: MACD moving above or below zero confirms a trend change.
- Divergence: price makes a new high while MACD makes a lower high — momentum is not confirming the move.
Where MACD fails.
In a range, the fast and slow averages wrap around each other and produce cross after cross. Each one looks like a signal; most lose. That is the most common way an indicator-only trader burns through a daily drawdown limit.
Divergence can also last much longer than your account can. A bearish divergence in a strong trend often resolves sideways, not down.
A safer way to trade it.
Use the higher timeframe for direction and take MACD crosses only in that direction. Put the stop beyond the last swing, not at a fixed distance, and size the position from that stop so one loss is 0.5–1% of the account.
On a $50,000 evaluation with a 3% daily limit, that means at least three full losses before the day is at risk — room for MACD's false signals to happen without ending the attempt.