MACD consist of:

• MACD Line = difference between 12 EMA and 26 EMA
• Signal Line = 9 EMA of MACD line
• Histogram = difference between MACD Line and Signal line

• MACD Line oscillates above and below the zero line (centerline). When MACD line crosses the zero line, it indicates that the 12-period EMA has crossed the 26-period EMA

1. MACD Line Crossover

• When MACD line crosses the zeroline, it signifies momentum is changing and beginning of a new trend. 
• A move above zero indicates BULLISHNESS & below indicates BEARISH signal

2. Signal Line Crossover

• Signal line crossover provides better timing over MACD line crossover
• When MACD line crosses above the signal line, a BUY signal is generated
• When MACD line crosses below the signal line, a SELL signal is generated

TIP -Since the MACD is an indicator, and not a trading system, there is no stop loss. For buy signals a stop can be placed below a recent low, and for short signals a stop can be placed above the recent high

3. Divergence

• Bullish divergence is when the price is making new lows, but the MACD isn’t
• Bearish divergence is when the price is making new highs, but the MACD isn’t

TIP - Divergence will almost always occur right after a sharp price move higher (or lower). But, until divergence is confirmed by an actual turnaround in price, don’t base trades simply on divergence. 

4. Overbought & Oversold signals

• When the distance between the MACD line & the Signal line increases, it indicates overbought/oversold region.

Adjustments & Limitations of MACD

• MACD divergence, on its own doesn't signal a reversal in price, at least not with the precision required for day trading. This doesn't mean the indicator can't be used.
• MACD works well when combined with other indicators like Bollinger Bands, RSI, Stochastic & Supertrend

Coming Next Week - Trading Strategies MACD+Bollinger, MACD+RSI, MACD+Stochastic