MACD Histogram

说完了MACD，就要说MACD Histogram了。

MACD Histogram是由Thomas Aspray在1986年开发出来的。

Definition of MACD Histogram

MACD Histogram: MACD minus MACD signal line.



Hence,
MACD histogram is positive (above zero) when MACD is above its 9-day EMA.
MACD histogram is negative (below zero) when MACD is below its 9-day EMA.
MACD histogram is zero when MACD crosses over its 9-day EMA.

Further increases or decreases in the gap between MACD and its trigger line will be reflected in the MACD-Histogram. Sharp increases in the MACD-Histogram indicate that MACD is rising faster than its 9-day EMA and bullish momentum is strengthening. Sharp declines in the MACD-Histogram indicate that MACD is falling faster than its 9-day EMA and bearish momentum is increasing.

MACD Histogram Divergence

Usually, but not always, a move in the MACD is preceded by a corresponding divergence in the MACD-Histogram.

Divergences between MACD and the MACD-Histogram are the main tool used to anticipate moving average crossovers.

A Positive Divergence (MACD Histogram increases but MACD decreases) in the MACD-Histogram indicates that the MACD is strengthening and could be on the verge of a Bullish Moving Average Crossover.

A Negative Divergence (MACD Histogram decreases but MACD increases) in the MACD-Histogram indicates that the MACD is weakening, and it foreshadows a Bearish Moving Average Crossover in the MACD.

The main signal generated by the MACD-Histogram is a divergence followed by a moving average crossover.

A bullish signal is generated when a Positive Divergence forms and there is a Bullish Centerline Crossover.

A bearish signal is generated when there is a Negative Divergence and a Bearish Centerline Crossover.

Keep in mind that a centerline crossover for the MACD-Histogram represents a moving average crossover for the MACD.


1 & 3: Positive Divergence followed by a bullish centerline cross-over of the histogram.
2 & 4: Negative Divergence followed by a bearish centerline cross-over of the histogram.

Types of Divergence

There are 2 types of divergence:

1) Slant Divergence: forms when there is a continuous and relatively smooth move in one direction (up or down) to form the divergence. Slant Divergences generally cover a shorter time frame than divergences formed with two peaks or two troughs.



2) Peak-trough Divergence: occurs when at least two peaks or two troughs develop in one direction to form the divergence. A series of two or more rising troughs (higher lows) can form a Positive Divergence and a series of two or more declining peaks (lower highs) can form a Negative Divergence. Peak-trough Divergences usually cover a longer time frame than slant divergences. On a daily chart, a peak-trough divergence can cover a time frame as short as two weeks or as long as several months.



John Murphy's Two-tiered Approach

In Technical Analysis of the Financial Markets, John Murphy advocates two-tiered approach to investing in order to avoid making trades against the major trend. The weekly MACD-Histogram can be used to generate a long-term signal in order to establish the tradable trend. Then only short-term signals that agree with the major trend would be considered.



If the long-term trend were bullish, only negative divergences with bearish centerline crossovers would be considered valid for the MACD-Histogram. If the long-term trend were bearish, only positive divergences with bullish centerline crossovers would be considered valid.

MACD Histogram's Drawbacks

1) The MACD-Histogram is an indicator of an indicator or a derivative of a derivative. The MACD is the first derivative of the price action of a security, and the MACD-Histogram is the second derivative of the price action of a security. As the second derivative, the MACD-Histogram is further removed from the actual price action of the underlying security. The further removed an indicator is from the underlying price action, the greater the chances of false signals. Keep in mind that this is an indicator of an indicator. The MACD-Histogram should not be compared directly with the price action of the underlying security.

2) Because MACD-Histogram was designed to anticipate MACD signals, there is a temptation to jump the gun. The MACD-Histogram should be used in conjunction with other aspects of technical analysis. This will help to alleviate the temptation for early entry. Another means to guard against early entry is to combine weekly signals with daily signals. Of course, there will be more daily signals than weekly signals. However, by using only the daily signals that agree with the weekly signals, there will be fewer daily signals to act on. By acting only on those daily signals that are in agreement with the weekly signals, you are also assured of trading with the longer trend and not against it.

3) Be careful of small and shallow divergences. While these may sometimes lead to good signals, they are also more apt to create false signals. One method to avoid small divergences is to look for larger divergences with two or more readily identifiable peaks or troughs. Compare the peaks and troughs from past action to determine significance. Only peaks and troughs that appear to be significant should warrant attention.





Venus

ps: The content and pictures of this article are excerpted from StockCharts.