Recently, while going through my review again, I also remembered the MACD indicator. Honestly, many people learn it for half a day and still can’t clearly tell the difference between DIF and DEA. Today, I’d like to share my understanding with everyone.

MACD stands for Moving Average Convergence Divergence. In Chinese, it’s called the Smoothed Moving Average Convergence-Divergence line, but you don’t need to memorize this name. The key is how to use it. This indicator consists of three parts: the fast line DIF, the slow line DEA, and the energy histogram—each of them has its own purpose.

Let’s start with the fast line DIF. This is the most responsive part of MACD. DIF is actually the result of subtracting the 26-period EMA from the 12-period EMA: short-term moving average minus long-term moving average. The larger the difference, the stronger the short-term momentum. I’ve found that many people ignore the fluctuations of DIF, but in fact it can help you capture many short-term trend changes. When DIF keeps rising, it means the market’s short-term momentum is strengthening; and when it’s falling, the opposite is true.

Next is the slow line DEA, also known as the signal line. Its role is to smooth out the noise in DIF. DEA is the 9-period exponential moving average of DIF. The benefit of doing this is that it filters out some false signals, making trend judgment more stable. The crossover between DIF and DEA is the most classic trading signal in MACD—when DIF crosses above DEA, it’s called a golden cross (bullish); when DIF crosses below DEA, it’s called a death cross (bearish).

The energy histogram is the result of DIF minus DEA. The height of the bars directly reflects the distance between the two lines. The more positive bars that rise, it means the bulls are strengthening; the more negative bars that fall, it means the bears are strengthening. As the bars gradually converge, it may indicate that the trend is about to reverse.

As for calculation, the foundation of MACD is the EMA (exponential moving average). It gives higher weight to recent prices, so it reacts faster than a simple moving average. The EMA formula is: today’s closing price multiplied by the smoothing factor, plus yesterday’s EMA multiplied by (1 minus the smoothing factor). The smoothing factor equals 2 divided by (period + 1). For example, for 12 periods, the smoothing factor is approximately 0.1538.

I actually calculated it using Binance’s ETHUSDT data. Suppose EMA 12 is 4271.55, and EMA 26 is 3941.88, then DIF is 329.67. Next, DEA uses the 9-period EMA of DIF, and the smoothing factor is 0.2. So today’s DEA is DIF multiplied by 0.2 plus yesterday’s DEA multiplied by 0.8. If yesterday’s DEA was 250.86, then today’s DEA is 266.62. Finally, the energy histogram is 329.67 minus 266.62, which equals 63.05. The whole process is not complicated—it’s just step-by-step derivation.

What impressed me most was the golden cross on Ethereum on April 13, when MACD’s DIF crossed above DEA. After that, Ethereum kept rallying and opened up a bull market. A contrary example is the death cross on December 9, 2024. After DIF crossed below DEA, the market pulled back by more than 60%. If that signal had been identified in time, it could have helped avoid a lot of losses.

There are a few questions that are often asked. First, some platforms amplify the energy histogram by double so the visual effect is more obvious. Second, golden crosses and death crosses do not necessarily mean an immediate rise or fall. Like all indicators, MACD has lag and may include noise, so it’s best to use it together with other technical analysis tools. Also, MACD parameters can be adjusted: for short-term trading you can use (5,13,5), and for long-term analysis you can use (50,200,20). However, changing the parameters affects sensitivity, so it’s recommended to backtest historical data first to find the best settings for you.

In the end, MACD is a tool that helps you judge trends. The calculation formulas and the definitions of DIF and DEA are just the basics—the real value is in how flexibly you apply it to improve your trading win rate. If you’re interested in MACD, open the chart and do a few more rounds of review yourself to experience how this indicator performs under different market conditions—then your understanding will be deeper. On Gate as well, you can see the full MACD tool. If you have time, feel free to try it.