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MACD Histogram Trading Strategy

February 8th, 2011 No comments

Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade. Download these Forex Scalping Cheatsheets FREE. These forex scalping cheatsheets give you the best times for scalping the forex market plus five different ways to scalp the market. Get this 1 Minute Forex Trading System FREE. This forex trading system is easy and simple to use and even a beginner can use to make instant pips. MACD ( Moving Average Convergence Divergence) Indicator is one of the most versatile technical indicators. MACD has two components. One is the histogram and the other is the difference of two moving averages. A MACD histogram is a very handy technical tool that shows whether the bulls or bears are in control of the market. The slope of the histogram is important in revealing the mood of the market. When the histogram is sloping upwards, it means the bulls are in control and when the slope is down, it means the bears are in control of the market.

The price trend whether up or down is likely to continue if it is in the same direction as the slope of the MACD Histogram. When the slope of the histogram and the price action are moving in opposite direction, it means that the trend is in jeopardy. As a rule, always try to trade in the direction of the slope of the histogram.

The best buy signals occur when the MACD Histogram is below the center line and the slope turns upward. In the same manner, the best sell signals are given when the MACD Histogram is above the center line and the slope turns downward indicating that the bulls have lost control.

So when to go short or long? When the bars on the histogram stop decreasing and start increasing, go short with the stop loss at the last minor high in the price action. When the prices continue to fall, you should replace the initial stop loss with a trailing stop loss that trails behind at the highest price level for the last two bars.

In the same manner, when the MACD Histogram stops decreasing and starts increasing, go long. Place the initial stop loss at the immediate minor high formed in the price action. When prices continue to rise, replace it with a trailing stop.

Signals from the slope of the MACD Histogram are more worthwhile on the weekly charts. Lower time frames like the daily charts have too many up and down moves making them difficult to trade.

Always remember, the higher the time frame, the longer the move will be.

Always confirm the trading signals given by the histogram with the price action. If the prices and the histogram make new lows or new highs together, it means the price action will continue to move in the same direction.