The MACD is a time honored indicator and used by many chartists. The histogram of the MACD is not as widely used, but for a short term trader it is an aid in determining when the MACD first begins to converge – and that information is important to traders because the MACD is a trailing indicator. Because it is based on moving averages the MACD always crosses its signal line several bars after price has already made its turn in direction. However, the MACD Histograms will start a convergence at the peak or valley when price first starts to change direction.

Figure 1 E-Mini 3000 Ticks per bar – 7-03-2014

Note the white vertical bars in the above chart. Obviously a better trade could have been made by entering at the peak or valley of the MACD Histogram, shown plotted over the MACD in the top of the chart. We like to plot the Histogram without axis value so that the bars are the tallest possible. It is the relative height of the bars that gives us our signal.

Along with our other battery of indicators the MACD Histogram is a valuable tool in our trading method.

 

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