Wikipedia states that Causality, also known as cause and effect or causation, is an agency or efficacy which connects one process or state (the cause) and another process (the effect). The first is partially responsible for the second, while the second is dependent upon the first.
A process can have many causes. These are the factors that cause it. All of them lie in its past. A cause can also be a cause for many macd histogram other effects. You might be wondering why I am saying these things. Right? It’s just to increase your curiosity. It will become second nature.
Wikipedia states that Causality, also known as cause and effect or causation, is an agency or efficacy which connects one process (the cause), with another process (the effect), in which the first is partially responsible and the second is dependent upon the first .
A process can have many causes. These are the factors that cause it. All of them lie in its past. A cause can also be a cause for many other effects. You might be wondering why I am saying these things. Right? It’s just to increase your curiosity. It will become second nature.
Let’s talk about the MACD indicator strategy. This tool is familiar to chartists.
This is why I hope you find this revision useful. If you are familiar with this topic, then you should be aware that MACD Histogram can be derived from MACD.
It is the MACD Histogram’s effect (cause) that I believe it to be. It is possible to relate this to the paragraph before. If not, no problem. Keep reading.
Before I proceed, however, I’d like to ask you to summarize MACD (moving average convergence divergence). Thank you for combining your thoughts with mine. I am glad. This will allow me to easily explain the article without adding any additional burden.
What’s MACD Histogram?
Thomas Aspray developed MACD Histogram in 1986. It bridges time between price movement and MACD. It provides a deeper understanding of the power balance between bulls and bears, than the original MACD.
A chartist’s best tool is the histogram. It shows not only who controls the market, but also how strong they are. The histogram can help you to create a MACD trading strategy. It measures the distance between MACD (or its Signal Line), and MACD (or its 9-day EMA of MACD).
Vertical lines in a series represent the difference. MACD-Histogram, like MACD and MACD, fluctuates above or below the zero line. This is an interesting fact. It is often called an “oscillator”. It is essentially a hide-and-seek between fast and slow lines.
Let me explain the chemistry that connects the two lines. Although I am sure you are extremely efficient at this, I want to share my knowledge. Haha!
MACD-Histogram plots above the zero line if the fast line is higher than the slow line. MACD-Histogram will be negative if the fast line crosses below the slow line. MACD Histogram equals Zero when the lines meet. The spread between MACD and Signal Line is directly related to height.
If the spread increases, MACD-Histogram gets taller or more dense depending on its direction. MACD-Histogram shrinks when the lines are closer together. The best results will come when you can identify the true value of the histogram. Don’t get confused. I was referring to spotting when the distance between two lines is increasing or decreasing.
If the histogram crosses its zero line (i.e. it is positive) but begins to fall towards the zero line, that is a sign that the uptrend is weakening. The opposite is true. If the histogram falls below its zero line (i.e., negative), but then starts rising toward the zero line it means that the downtrend is weakening. The decrease in height above or below the zero line indicates that the underlying momentum has been weakening.
A marriage of weekly and daily
If you don’t know what I mean, then I suggest that you take a step blindly. Yes, blindly. Keep two time frames. One for identification, and one for execution. Yes, you can look at the longer time frame but execute the trade in a shorter time frame.
It is because weekly signals are more valuable than daily charts. This formula works well with MACD Histogram.
Combining them is the best way to do so. Use weekly signals to establish market direction, and daily signals to fine-tune entry/exit points.
If the weekly chart provides a trigger, then the shorter timeframe also syncs with the larger slice.
You don’t have to abide by my words. My previous statement will be supported by empirical research. It is available for you to try and leave feedback. It acts as a scanner and filters daily signals.
The Benefits of Contrary Thinking
The principle of Contrary Opinion states that when the majority of people agree on something, they are usually wrong. To increase its weightage, I would like to add the maxim ” Do not do different things but do them differently.”
This will help you increase your portfolio returns. Be a contrarian. To reap the rewards, first try to figure out what the masses are doing. Then, move in the opposite direction. This is not recommended for people who aren’t interested in combining their thoughts with crowd psychology.
Common Psychology in MACD Histogram
MACD Histogram shows the differences between short-term and long-term consensus. You should now have some understanding of MACD and MACD Histogram.
You must also have realized that the MACD line is faster if it is considered a shorter period of time.
However, market consensus is reflected in a longer timeframe if the Signal line is considered slower.
What is MACD-Histogram’s role? It fills in the space between these lines.
Basic Interpretations of the MACD Histogram
MACD-Histogram is the fourth derivative price. Let’s now interpret this indicator.
MACD-Histogram, like MACD, can be used to identify crossovers and, most importantly, convergences and divergences.
As mentioned earlier, if the MACD lines are above the Signal line, the histogram will be positive. This positivity is directly proportional with the diversion from the Signal line of the MACD lines.
However, if the MACD lines are below the Signal lines, the histogram becomes negative. This negativity is directly proportional with the diversion of MACD lines from their Signal line.
Both cases show that the magnitude decreases as the MACD and Signal lines converge.
It is good to be able to gauge your concentration. Energy flows from where there is focus.
MACD Histogram Peak–Trough Divergence
You should now be able to see how the histogram moves to the beats of the prices. It is easy to see the divergences if you look closely.
It will be obvious that there is a peak-trough divergence when there are two peaks and two troughs on the MACD Histogram.
It can usually be divided into two parts: Bullish peak, trough divergence, and bearish peak, trough divergence.
Bullish Peak-Trough Divergence
It forms when MACD makes lower lows and MACD-Histogram makes higher lows. You should remember that well-defined lows are what determine the health of a bullish peak through divergence.
MACD Histogram Slant Divergence
Slant divergence is, as the name implies, a slope capable of creating a divergence even without having well-defined peaks/troughs. It is easy to see. There is now only one slope, instead of two peaks/troughs.We can call it a bullish, upward slant or bearish, for our convenience.
You should now understand that the MACD Line crosses over the Signal Line from above to cause a fall in the price and simultaneously, the histogram can be seen on the downside (i.e. below the zero line).
However, when the MACD Line crosses over the Signal Line from below the price level increases and simultaneously the histogram can be seen on the upside (i.e. above the zero line). Let’s stop with the recapitulation. Let’s proceed.
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