MACD (Moving Average Convergence Divergence) measures momentum by tracking the gap between two moving averages - typically the 12- and 26-period EMAs. When the fast average pulls away from the slow one, momentum is building; when they converge, it is fading.
The three parts
MACD has three components. The MACD line is the difference between the two EMAs. The signal line is a smoothed average of the MACD line. The histogram is the gap between them, drawn as bars. When the MACD line crosses above the signal line, momentum is turning up; a cross below suggests it is turning down.
Why it lags
Because MACD is built entirely from moving averages, it inherits their lag - it confirms a momentum shift after part of the move has happened. That is fine if you use it to read the character of a move rather than to call the exact turn. The histogram shrinking while price still rises is a subtle tell that momentum is leaking, often before the crossover fires.
A MACD crossover tells you momentum already turned - not that it is about to.
Where it fits
MACD works best framing whether you are in a momentum regime at all. In choppy, range-bound tape it produces constant false crossovers; in a clean trend it stays helpfully on one side. Combined with RSI for momentum and VWAP for the session anchor, it is one honest input - not a system on its own.
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