Financial Market Fisherman

Jun 01 2008

MACD Histogram can alert you to tops and bottoms

Published by Dean at 10:37 pm under Discretionary System, Financial Market Fisherman, Mechanical System, Technical Analysis, Trade, Trading, Trading Plan, Trading System, Trend, Trigger

The MACD Histogram is a great tool that can alert you to possible tops or bottoms.

On occasions the MACD itself may be following the price nicely but the Histogram can be diverging, telling the trained eye to look out for a turn in price.

The MACD Histogram is the difference between both MACD lines, and as such if it is weakening (diverging) even though price is still advancing (making higher highs) or falling (making lower lows), it can suggest the move is running out of steam.

Taking a look at the chart posted below, we can see two examples when the MACD has not diverged with price but the Histogram has, and on both occasions, price has turned the other way.

If you use or are planning on using MACD in your technical analysis, then do look out for what the Histogram is doing too, and add it to your trading tool box.