Histogram(MACD) Divergence Trading

20. Sept.

Let us discuss the MACD indicator strategy and histogram. I know being a chartist you are familiar with this tool.

Hence I hope this will be a revision for you. Assuming you already know this topic, you should know that MACD Histogram is derived from MACD.

To me, it is the effect of MACD (cause), without which MACD Histogram would not have been born. I hope you can relate it to the previous paragraph. If not, no problem. Carry on reading.

But before proceeding further I would request you to recapitulate MACD (moving average convergence divergence). Thanks for converging your thoughts with that of mine. I am glad. It will help me to explain this article without taking the additional burden.

MACD Histogram Peak-Trough Divergence
By now you must have understood how the histogram dances to the tunes of prices. If one looks at it closely then one can easily identify the divergences.

You will notice that a peak and trough divergence is formed with two peaks or two troughs in the MACD Histogram.

Usually, it can be segregated into two parts, i.e. bullish peak and trough divergence and bearish peak and trough divergence.

Alright, I will explain you in short.

Bullish Peak-Trough Divergence
It is formed when MACD makes a lower low and on the contrary, MACD-Histogram makes a higher low. One thing you should keep in mind, i.e., well-defined troughs define the health of a bullish peak-trough divergence.

bullish peak trough divergence
Bearish Peak-Trough Divergence
It is formed when MACD makes a higher high and on the contrary MACD Histogram makes a lower high.

One thing you should keep in mind, i.e., well-defined peaks define the health of a bearish peak-trough divergence.