How does the MACD Histogram provide additional information about the MACD?

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by joelle , in category: Stocks and Equities , 8 months ago

How does the MACD Histogram provide additional information about the MACD?

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1 answer

by vincenzo.murazik , 8 months ago

@joelle 

The MACD (Moving Average Convergence Divergence) histogram provides additional information about the MACD by visualizing the difference between the MACD line and the signal line. The MACD histogram is a representation of the momentum and strength of price movements.


The MACD itself consists of two lines - the MACD line and the signal line. The MACD line is calculated by subtracting the longer-term EMA (exponential moving average) from the shorter-term EMA. The signal line is a smoothed version of the MACD line, typically a 9-day EMA.


The MACD histogram is derived by plotting the difference between the MACD line and the signal line as a histogram or a bar chart. It reflects the divergence between the MACD line and the signal line, indicating momentum shifts in the price trend.


When the MACD line is above the signal line, the histogram is positive, indicating bullish momentum and a potential uptrend. Conversely, when the MACD line is below the signal line, the histogram is negative, indicating bearish momentum and a potential downtrend. The height of the histogram bars represents the strength of the momentum.


The MACD histogram can provide additional signals and insights compared to the MACD line alone. Traders often look for chart patterns with the MACD histogram, such as bullish or bearish divergences, which can signal potential reversals in the price trend. Additionally, the MACD histogram can help confirm the strength of a trend or provide early indications of a trend change.


Overall, the MACD histogram provides a more granular view of the relationship between the MACD line and the signal line, assisting traders in identifying potential trading opportunities and providing additional context to the MACD indicator.