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1. Compare moving average lines. The MACD oscillator consists of two moving average lines. The fast line, which reflects the short-term trend, is usually a 12-day exponential moving average, while the slower (darker) line is often set as a 26-day exponential moving average. The heart of the MACD is in the relative movements of these two lines. When the fast line crosses over the slow line, a trend is expected to develop in the direction the fast line is moving.
2. Identify zero-line crossovers and monitor extremes. The center line, or zero line, is the midpoint in the histogram portion of the MACD. It represents the point at which the difference between the fast and slow moving averages is zero. A center-line crossover is a graphical representation of a moving average crossover. The upper and lower bounds of the histogram, however, represent overbought and oversold conditions that are likely to trigger a reversal in trend.
3. Identify divergences. A very powerful use of the MACD is in spotting divergences between the moving averages and price. A bullish divergence occurs when the MACD moving averages begin moving higher while price continues moving lower. Conversely, a bearish divergence occurs when MACD consistently moves lower while price continues to move higher. Though a divergence can last for a considerable period, it is a reliable indication that an existing trend is maturing and likely to reverse.