How MACD Histogram Differs from MACD and Which One to Choose

MACD Histogram vs. MACD relationship

MACD Histogram is an indicator derived from MACD. The value of MACD Histogram equals the distance between the MACD line and the Signal line, which is an exponential moving average of the MACD line. Therefore MACD Histogram is just a different way of looking at the information already provided by the MACD itself.

There is no new information in the MACD Histogram

You will not find any new information on the MACD Histogram chart that you couldn’t find on the basic MACD chart. You can see both the MACD line and the Signal line on the basic MACD chart and of course you can see their distance there too.

After all, when you have MACD displayed, you don’t need to set any additional parameters in order to display MACD Histogram – both indicators work with the same numbers.

Why look at MACD Histogram then?

It is quite difficult to observe the developments in the two lines’ distance on the basic MACD chart, as the bar-to-bar differences are very small. MACD Histogram is all dedicated just to plotting this distance and therefore its chart’s scale can be more focused and detailed. As a result, it makes all the little changes more visible and can help you make faster decisions. In sum, MACD Histogram is a kind of zoom on what really matters in the MACD chart.

What MACD and MACD Histogram have in common

Both oscillate around zero.
Both represent a distance between two lines which are trend-following in nature (it is all built around moving averages).
When the indicator is rising, it is a signal that bulls are gaining strength vs. the bears, and vice versa.

Differences in behaviour and their interpretation

When MACD is at zero, it means that the two exponential moving averages of price are just crossing.
When MACD Histogram is at zero, it means that the MACD line is just crossing the Signal line. At this moment, the two exponential moving averages of price can be far away from one another.
At one particular moment, MACD can be rising while MACD Histogram can be falling and vice versa. While one is telling you “bullish”, the other can be giving a bearish signal.

So which one to trust?

It is all a matter of your perspective. Though both MACD and MACD Histogram are designed to identify whether market is bullish vs. bearish, they focus on slightly different horizon and they react at different speed.

In general, when the market’s sentiment is turning, you first get a signal from the MACD Histogram. When the original momentum starts to fade and the MACD line starts approaching the Signal line, MACD Histogram reverses. At this moment, the MACD itself may still be pointing in the original direction. It may take a few bars until the MACD line changes direction too and a few more bars until it crosses the Signal line.

MACD lags behind MACD Histogram

To conclude, MACD Histogram reacts faster to changes in price direction, while MACD lags a bit. Therefore, if you want to pick price reversals and jump on any potential new trend as soon as possible, use the MACD Histogram. The downside is that MACD Histogram changes direction much more often than the MACD and you can get a lot of bad signals. Do you want to be the hare or the turtle? Both have advantages and disadvantages.

If you find this useful or interesting...
or just like it - please let others know: