The MACD Histogram and
How It Works as a Buy/Sell Signal
MACD histogram: What does the histogram represent?
The histogram or "bar graph" included in the MACD background (see the figure below) shows the difference between the MACD and the signal line. When MACD is higher than the signal line, the bar is positive. When MACD is lower than the signal line, the bar is negative. The actual height of the bar is the difference between the MACD histogram and the signal line itself.
For more aggressive traders who are not interested in additional confirmations and are just looking for possible early entry, they may prefer this less widely used implied entry signal based on the MACD histogram. This is because the setting of the histogram bar (9) is faster than the MACD line or signal line, which results in a more timely trigger-please refer to the MACD cross and MACD histogram below.
MACD crossover vs MACD histogram:
Use MACD histogram to identify bullish/bearish bias
The first point of analysis is to track the MACD histogram when it moves away from the zero line (positive or negative)-track it as its bars grow larger. When the height of the histogram no longer increases and smaller bars are produced, the actual signal appears. Once the histogram prints out the smaller bars, the trader will enter the market in the downward direction of the histogram.
The suggestive buy signal on the left (blue) is generated by five consecutive red bars that expand, followed by the fifth bar with a smaller harvest. After two bars, the MACD line crosses above the signal line, which is the traditional MACD signal. This later signal will miss most of the upward movement that the histogram signal would capture.
The suggestive sell signal on the right (yellow) is a similar story. We see that the 14 bars continue to grow until the 15th bar shrinks. This buy transaction appeared several bars before the MACD/signal line crossed.