Technical Analysis, Studies, Indicators:

MACD Histogram

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Description: most popular and most used technical indicators, introduction into technical analysis, basics of the stock market trend analysis, chart example.

MACD Indicators can tend to lag price movements. The MACD-Histogram represents the difference between the MACD and its signals line (EMA). As a rule a change in the MACD Histogram will usually precede any changes in MACD and the MACD histogram signals can show trend changes more in advance in comparison to the MACD signal. On the other hand it makes the MACD histogram a less reliable indicator that may generate more fake signals. Very often the MACD Histogram is shown on the chart together with the MACD indicator.

The MACD histogram makes centerline crossovers and divergences more easily identifiable. Whenever MACD crosses the signal line (EMA), MACD-Histogram crosses the zero line. If the value of MACD is larger than the value of the signal line, then the value on the MACD-Histogram will be positive. Conversely, if the value of MACD is less than its the signal line, then the value on the MACD-Histogram will be negative.

The simplest use of MACD Histogram is using points at which the indicator crosses the zero line. A buy signal could be generated as the MACD histogram runs above the zero line (center line) and a sell signal could be generated as the histogram runs below zero.

  • Close short position and go long when the MACD Histogram runs above zero.
  • Close long position and go short when MACD Histogram runs below zero.

Chart 1: S&P 500 MACD Histogram Chart

SP 500 MACD Histogram Chart

Victor Kalitowski

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