Recently, I saw someone discussing the MACD indicator again, and it suddenly reminded me of how much this tool has helped me throughout my trading career. Rather than calling it some sophisticated thing, it’s more like a very practical "market thermometer" that can help you judge the strength of bulls and bears.

First, let me briefly explain the origin of MACD. This indicator was proposed by American investor Gerald Appel in 1979. Later, in 1986, another American, Thomas Aspray, added the histogram to his version based on Appel’s work, which is the version we use today. Honestly, after more than 40 years of evolution, MACD remains popular on major trading platforms because it’s simple and reliable enough.

Regarding the composition of MACD, there are four core components. DIF is the fast line, calculated by subtracting the 26-day EMA from the 12-day EMA, reflecting short-term price momentum. Then there’s the DEA slow line, which is the 9-day exponential moving average of DIF, used to smooth out the fast line’s fluctuations. Next is the histogram (the difference between DIF and DEA), with red representing bullish momentum and green indicating bearish momentum. Finally, there’s the zero line, which is crucial—it divides the market into bullish and bearish territories—above zero is bullish dominance, below zero is bearish dominance.

Now, let’s talk about how to use this tool. Personally, I pay the most attention to the position of the zero line. When both DIF and DEA are above zero, it indicates strong bullish forces. If a golden cross (DIF crossing above DEA) occurs at this time, especially the first golden cross above zero, it often signals the start of a major upward move. I call this situation a "relatively ideal entry point" because even if the prediction fails, the loss won’t be too big. Conversely, if both lines are below zero, bearish dominance prevails, and a golden cross here might just be a short-term rebound, not necessarily a sign of a sustained rally.

The operation of golden and death crosses should also be considered in conjunction with the position of the zero line. When DEA is below zero and turns upward to form a golden cross with DIF, it’s usually the start of a rebound. But if DEA is above zero and turns upward to form a golden cross with DIF, it indicates the correction has ended, and bulls may be gathering strength again. The logic for death crosses is the opposite—if a death cross occurs above zero, it suggests a correction; if it occurs below zero, it indicates the rebound might be ending.

The histogram also reveals many insights. Divergence patterns (where each bar is longer than the previous one) indicate strengthening trends, while convergence patterns (shorter bars) suggest weakening momentum. The most interesting is trend reversal—when the red and green bars switch, it often signals a change in market sentiment. I often observe that in a bullish market above zero, the histogram shifts from divergence to convergence, which is a warning that a price correction might be coming.

Divergence phenomena are also worth noting. Top divergence occurs when the price hits a new high but MACD declines, or when the price rises while the histogram converges—this indicates weakening upward momentum and a potential pullback. Bottom divergence is the opposite—price hits a new low but MACD rises, suggesting the downward momentum is weakening and a rebound could happen. However, it’s important to note that bottom divergence generally has a lower success rate than top divergence, and small-scale bottom divergence might just be a short-term bounce.

As for the limitations of MACD, I must be honest—it’s not万能. As a medium- to long-term indicator, it can generate false signals during short-term volatility or consolidation, and it has a lagging nature. If the market moves very violently, MACD might react too slowly. Therefore, my advice is not to rely solely on MACD; you should combine signals like golden/death crosses, zero line position, divergence, and also consider other indicators such as RSI and moving averages. The more confirmation signals you have, the higher your prediction accuracy.

In simple terms, MACD is a tool to help you read market sentiment. When used well, it can improve your win rate, but only if you understand its logic rather than mechanically following signals.