The MACD histogram is a visual representation of the difference between the MACD and its nine-day EMA—not highs and lows. The histogram is positive when the MACD is above its nine-day EMA and negative when the MACD is below its nine-day EMA. The point on the histogram where momentum is zero is the zero line.
If prices change rapidly, the histogram bars grow longer as the speed of the price movement—its momentum—accelerates and shrinks as price movement decelerates.
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Traders may often use the MACD and relative strength index (RSI) indicator strategy. This allows them to use both the RSI and the SMA to their advantage. But what are they? Combining these three strategies together allows traders to:
The concept behind the MACD is straightforward. It calculates the difference between a security’s 26-day and 12-day exponential moving averages (EMA). Each moving average uses the closing price of its period (26- and 12-day) to calculate its moving average value. On the MACD chart, a nine-period EMA of the MACD itself is also plotted. This line is called…
Histogram The MACD histogram can be a useful tool for some traders. While we’ve explained a little bit above about how to read it, here’s how it works. It plots out the difference between the fast MACD line and the signal line. Traders can use the MACD histogram as a momentum indicator to jump ahead of changes in market…
Divergence refers to a situation where factors move away from or are independent of others. With the MACD, it is a situation where price action and momentum are not acting together. For instance, divergence can indicate a period where the price makes successively lower highs, but the MACD histogram shows a succession of higher lows. In…
We’ll use our zero-cross image for a MACD trading example. As trading proceeds, you observe the MACD initially crossed the zero line from below, then crossed again from above. A trader might notice the histogram bars moving down with the MACD, indicating a possible reversal and opportunity for a short trade. When the line crossed from above,…
Like any oscillator or indicator, the MACD has drawbacks and risks.
