MACD-Histogram offers a deeper insight into the balance of power between bulls and bears than the original MACD. It shows not only whether bulls or bears are in control but also whether they are growing stronger or weaker. It is one of the best tools available to a market technician.
MACD-Histogram = MACD line - Signal line
MACD-Histogram measures the difference between the MACD line and the Signal line (see worksheet, Figure 26-1). It plots that difference as a histogram — a series of vertical bars. That distance may appear puny, but a computer rescales it to fill the screen.
If the fast line is above the slow line, MACD-Histogram is positive and plotted above the zero line. If the fast line is below the slow line, MACD-Histogram is negative and plotted below the zero line. When the two lines touch, MACD-Histogram equals zero.
When the spread between the MACD and Signal lines increases, MACD-Histogram becomes taller or deeper, depending on its direction. When the two lines draw closer, MACD-Histogram becomes shorter.
The slope of MACD-Histogram is defined by the relationship between any two neighboring bars. If the last bar is higher (like the height of letters m-M), the slope of MACD-Histogram is up. If the last bar is lower (like the depth of letters P-p), then the slope of MACD-Histogram is down.
Was this article helpful?
In This Book, you will learn all about the fundamentals of true financial empowerment! Gone are the days of thinking like a poor person's mindset. It is time to change that way of thinking so that you will truly attract wealth in your hands.