Recently, someone asked me what MACD is again, so I might as well organize it, because it is truly one of the most practical indicators in trading.

Speaking of MACD, its logic is actually not complicated. It is a system based on moving averages, with the core being to track changes in price momentum. I’ve used it for many years, and what I like most is its intuitiveness—no need to memorize a bunch of formulas.

Structurally, it is divided into three parts. First is the MACD line itself, which is the difference between the 12-period and 26-period exponential moving averages. Then there is the signal line, usually a 9-period EMA of the MACD line, used to identify turning points. Lastly, there is the histogram, visually showing the distance between these two lines, allowing you to quickly see the strength of the momentum.

When reading signals, look for crossovers. When the MACD line crosses above the signal line, it usually indicates increasing bullish momentum, and many people interpret this as a buy signal. Conversely, crossing below may be a sell signal. Another important concept is divergence—when the price hits new highs but the MACD does not, or vice versa, it often signals that the trend may be reversing.

The advantage of MACD is its flexibility; it can be used on daily charts or 4-hour charts, and it can be combined with other indicators. The visual effect is also good, with the histogram making signals very clear. But I must admit its downside—it's a lagging indicator, after all, based on averages, and it can give false signals in choppy markets.

So my advice is, you should understand what MACD is and how to use it as a foundation, but don’t treat it as gospel. The best approach is to combine it with other technical tools and maintain disciplined risk management. Only then can you survive longer in the market.