MACD stands for Moving Average Convergence Divergence. It's a trend-following indicator that helps traders understand the momentum of a stock. Simply put, MACD shows when a stock’s trend might be changing — either speeding up or slowing down.
MACD is made of 3 key parts:
• The MACD line (difference between two moving averages).
• The Signal line (a moving average of the MACD line).
• The Histogram (visual bars showing the difference between MACD and Signal).
MACD helps traders spot trend changes. When the MACD line crosses above the Signal line, it can be a buy signal. When it crosses below, it might be a sell signal.
MACD is especially useful in identifying when a penny stock’s momentum is shifting. It helps traders catch potential reversals early or confirm a trend before making a move.
Example: A penny stock is trending sideways. Suddenly, the MACD line crosses above the Signal line and the histogram turns green — this could signal the start of a breakout.