Hello, my friend, and welcome to this tutorial on Trading MACD Histogram. This post discusses how to use the MACD histogram to spot buy/sell signals using divergences and convergences in momentum. Enjoy!
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Trading MACD Histogram – Video
Welcome to this trading tutorial on the MACD histogram indicator. Today, we’re going to discuss how it’s computed and how to use it effectively. The MACD histogram is applicable to Forex, futures, and stocks, as it is based on price action.
Let’s Define MACD
Firstly, let’s talk about what it means when I say “what it means.” The MACD is a mathematical formula, so let’s discuss what it mathematically implies. The green line in the chart represents the MACD line, which stands for Moving Average Convergence Divergence. The red line is a moving average of the MACD line. The MACD line is calculated using the 12-day and 26-day exponential moving averages (EMA), while the signal line is a 9-period EMA of the MACD.
Trading the MACD Histogram – A Deeper Look
Now, let’s discuss the histogram. The MACD line represents the difference between the two moving averages. When there is no difference between them, the MACD line hits zero. When the moving averages converge and touch, the MACD line will be at zero. Consecutively, when the MACD line is moving up, it means that the moving averages are moving further apart, indicating acceleration or momentum. However, if the MACD line is moving up and the histogram is moving down, it means that the distance between the moving averages is getting smaller, indicating a decrease in momentum.
The histogram measures the difference between the MACD line and the signal line. When they cross, the histogram goes to zero. When they cross and the MACD line is moving up faster than the signal line, the histogram will move up. Conversely, if the MACD line is moving up slower than the signal line, the histogram will decrease.
Consider the Context of the Market You’re Trading When Using the MACD Histogram
To trade using the MACD histogram, it is important to consider the context of the market. Look for convergences or divergences in relation to the trend. Convergences indicate that the market’s power is continuing in the same direction, while divergences can signal a trend reversal. However, divergences are more effective towards the end of a trend, as the longer a trend continues, the less likely it is to continue.
I hope this tutorial was helpful. If you have any questions, feel free to ask. Don’t forget to check out my other videos. Thank you!
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