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Using MACD Histogram to Trade the Traditional MACD Crossover



There are many ways how to trade with MACD. You can read more about trend-following MACD trading and counter-trend trading.

MACD Histogram vs. MACD

In one of the previous articles we were discussing how MACD Histogram is (or in fact isn’t) different from the basic MACD and also the advantage of displaying the information in the form of MACD Histogram vs. basic MACD.

The traditional MACD line / Signal line crossover

Besides various MACD-Histogram-specific trading strategies, it is also possible to use the MACD Histogram chart for trading the classical MACD crossover:

  • You buy when MACD line crosses above the Signal line.
  • You sell when it crosses below.

I know there is no MACD line and no Signal line on the MACD Histogram chart. But if you are worried that you will lose the ability to see these signals after switching from basic MACD to MACD Histogram, think about the relationship between the two indicators again.

The information is the same

What MACD Histogram means? Its value is the difference between the MACD line and the Signal line. Therefore, when MACD line is crossing above the Signal line, it is exactly the same time as when MACD Histogram is crossing above zero. On the other side, MACD Histogram crossing below zero indicates the MACD line crossing below the Signal line. Same information, just different graphics.

Is there any information missing in the MACD Histogram?

Are there any pieces of information I will lose by switching from MACD to MACD Histogram? Yes, there are some.

MACD Histogram displays the distance between the MACD line and the Signal line in great detail, but it doesn’t show the absolute values of any of the two lines. You will therefore not see how far the two exponential moving averages of price are and you will even not recognize when they cross. Nevertheless, such information is not needed for trading the MACD crossover in the traditional way.

Displaying the charts

However, if you do want or need all these kinds of information for your decision making and you don’t want to give up the beauty of MACD Histogram detail, you have options.

The most obvious solution is putting both MACD and MACD Histogram on your charts. You will need to have a separate chart pane for each, as displaying the Histogram in the same pane as the MACD would defeat the sole reason for displaying it – the greater detail.

Combining MACD Histogram and moving averages

Another and quite elegant solution is displaying only the MACD Histogram in a separate chart pane and adding the two exponential moving averages directly to the price chart. This way you have all the information provided by MACD, you have a very detailed view of the Histogram, and you see the relationship between the two moving averages in the price chart. Thanks to eliminating the basic MACD chart pane, you can make the other ones bigger. At the same time, it is more comfortable to follow two panes than three. The downside to this solution is that some people find moving averages distracting when they are looking for patterns, trendlines, or support and resistance levels in the price chart.


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Topics: Technical Analysis