MACD Histogram Divergence or MACDH Divergence occurs when price action is not confirmed by the common MACD Histogram.    The top picture is a screenshot of a daily chart of SPY.  The price is plotted as daily bars in the top section.  In the middle, is the MACD indicator with yellow bars for the MACD Histogram (MACDH), yellow MACD line and blue signal line.   The bottom plot is volume.

The MACD Histogram Divergence is marked by green price bars.  It is a MACDH positive divergence and generally considered a bullish signal.  The green arrows are drawn to illustrate the nature of the MACDH Divergence:  the price  makes a lower low while the MACDH indicator makes a higher low.   Click on the chart - twice - to enlarge it for a better view.

One interesting thing to note is that the MACD lines themselves are not showing a divergence at the same time as the MACDH divergence.   It is not necessary for the two types of divergence to occur together.   In this example, the MACD divergence happens a little later, at the 3rd new low of price.   As it happens, the price makes a longer rally from that divergence point.

A MACDH negative divergence is generally considered a bearish signal.  It is the opposite situation from a positive divergence.   A negative divergence  is said to occur when price makes a new high but the MACD Histogram indicator makes a lower high.   This is illustrated by the red arrows in the screenshot below of a daily chart of Citibank, NYSE: C

To learn more about trading with MACD, including detailed data comparing the historical performance of MACD Histogram Divergences with MACD Lines Divergences, visit the TruthAboutMACD.com and watch a free video.

Tags: MACD, MACD Histogram, MACD Histogram divergence, macdh

I’m posting my weekend market analysis today for two reasons: 

• to illustrate how I use the MACD divergence signals
• because it looks like something interesting may be afoot

Step 1 - Form an overall opinion of the market direction

I use several indicators, factors, and experts to form my overall opinion of the markets.   Some methods I’ve back tested, others await testing.  For today, I’ll cite the following:

• McClellan Summation Index Negative Divergence
• SPY down hard and closing at its lows, after exhibiting repeated negative MACD divergences
• Weekly Trade Triangle Sell Signal — check out this video by Adam Hewison for a very articulate rundown

I come away with a bearish outlook for US stocks.

Step 2 - Check the Weekly MACD Divergences, then Daily MACD Divergences

Since my outlook is bearish, I will be looking more at the negative MACD Divergence signals.   I have yet to publish the back test results for shorting MACD Divergences but let me just say that I know to be VERY cautious with these signals on the short side.     If I owned any stocks on the negative divergence lists, however, I would sell them in a heartbeat, given my outlook from Step 1.

If my outlook were more bullish, I would examine the positive divergence signals for possible buy candidates.  But it isn’t, so I don’t.

Always check the larger timeframe first so that means looking at weekly charts before daily charts.  Whether you choose to review MACD Histogram divergences or MACD Lines divergences or both will depend on your goals and temperment.

I check in this order:

1. Weekly MACD Divergences
2. Weekly MACD Histogram Divergences
3. Daily MACD Divergences
4. Daily MACD Histogram Divergences

As of Friday’s close, two stocks appear as negative MACD divergences on all four lists: BIDU and SBUX

Step 3 - Gather more info about the candidate stocks

I check the charts of my two favorites from the lists.  Both charts look like reasonable negative MACD Divergences.   I also take a brief glimpse at selected Key Statistics.   BIDU is showing moderate but not overwhelming growth.   SBUX sports 4-figure earnings growth which I take to mean they have recovered a bit from the abyss.   Still MCD is making strong competition.

I also check my affiliate INO.com’s trade triangle trend analysis.  Again, I haven’t yet published my back test results but let me briefly say that my interest is to emphasize the Weekly Trade Triangle.   I don’t take all the signals but won’t trade against them, that’s for sure!

As it happens, SBUX  just got a weekly triangle buy signal so that scratches it from my list for now but I add it to my portfolio to watch.   BIDU is listed as “sideways mode” so that remains a viable candidate for a high-risk short sale.

Along the way, I noticed a fresh weekly triangle sell signal on AAPL.  That catches my eye because AAPL showed up on the weekly negative divergence list and my friends were talking about its upcoming product announcement Wednesday.   I also add AAPL to my watch list for consideration late in the week.

(if you want your own Trend Analysis, just click the symbol and enter your email address)

Step 4 - Apply Risk Management

The final step in assessing trading opportunities is applying judgement to reduce risk.  

I first consider what I know of my best current candidate from the steps above, BIDU:  its a crowd favorite that’s defied gravity before.  That’s not to say it hasn’t been knocked down, it just that as it hit a New High earlier in the week, I know it will come to the attention of lots of momentum traders.    

I decide to short BIDU, but select a risk amount on the small end of my scale.

I consider where to put my stop loss and realize due to the high price per share, it will be over $50 per share away from my likely entry point.  That means to keep my risk low, I will be trading very few shares indeed.   So be it.

I enter the order to sell short, along with an automatic stop loss and wait to see what next week will bring.

In summary, this is an example of my process of stock market analysis which highlights how the MACD Divergence signals can be used in the context of a broader market analysis.    I hope you can learn from this example and apply these tools to help your own trading.

Tags: MACD, MACD divergence, MACD Histogram, signal

The new Signals pages give you a snapshot of the MACD divergence signals across all NASDAQ stocks.   This gives you a quick and easy way to find these elusive signals without flipping through thousands of charts.

In keeping with our mission as an educational resource, these MACD divergence signals are posted to show you an easy way to find examples for further study.   Before trading, we strongly enourage you to assess the track record for divergences — it is not perfect — by reading either the reports or videos in the Truth About MACD Series.

The divergences sought and presented by the scanners are:  

• MACD Divergences using the MACD line or Appel’s Histogram
• MACD Histogram Divergences using the common MACDH 

The scheduled update times are:

Weekly MACD and MACDH Divergences: once a week, calculated on each Friday close and posted no later than Monday evening

Daily MACD and MACDH Divergences: twice a week:

• calculated on each Friday close and posted no later than Monday evening
• calculated on each Wednesday close and posted no later than Thursday evening

Trend Analysis is provided on each stock symbol by affiliate partner INO.com, giving you complimentary technical analysis briefings using entirely different criteria.   Trend Analysis uses trend following techniques while MACD Divergences are a reversal technique.    You can consider both for a more balanced view of each market.   To get the Trend Analysis, click the symbol on the Signals page list - it costs you nothing and and no payment info will ever be requested.

Check out the Signals pages today:

• MACD Divs Daily
• MACD Divs Weekly
• MACDH Divs Daily
• MACDH Divs Weekly

Tags: INO, MACD, MACD divergence, MACD Histogram, macdh, signal

If you’ve ever wondered:

• which MACD sell signal has the best track record
• whether to sell when the MACD Histogram ticks down or wait for the lines to cross
• how far positions have dropped after a MACD by signal
• whether stop losses really reduce risk
• whether using an ATR stop is worth the effort

then you might considering investing in a copy of the MACD Sell Signals BackTesting Report.

The MACD Sell Signal Report builds on two of the MACD Buy Signals to backtest basic exit signals using MACD lines and histograms. This report gives the first look at Maximum Adverse Excursion - how far the position went against you — as a way to measure the risk of each strategy.   It also compares three different types of stop losses to reduce risk.   Read this report to find out how you would have fared by following the MACD and MACD Histogram.

 Subscribe to BackTesting Report Now or order MACD Reports separately

Tags: ATR, backtesting, exit, linkedin, MACD, MACD Histogram, MAE, Maximum Adverse Excursion, risk, selling, stop

Updated June 03, 2009…this promotion has ended. Congratulations to Mike T. –  the winner of the drawing for a free subscription to BackTesting Report.   You can still get the chapter and more in the MACD Buy Signals BackTesting Report.

 This chapter is for you if…

• You’re not clear on the distinction between the common MACD Histogram and Appel’s Histogram.   Don’t worry, you’re not alone. The two different ways of plotting the MACD Histogram confused many people, even experts — see earlier posts for a few examples.  
• You just want to brush up on the MACD, how its plotted and what signals it gives.
• You want to see a little bit of what’s inside a BackTesting Report.  The MACD Buy Signals Report sells for $37 but this chapter is yours free.

Enter Drawing to Win a 12-Issue Subscription to BackTesting Report

 After you download and read the free chapter of the report above, leave a comment on this post to enter the drawing.     If you’ve never commented on a blog before, you just click the comment link at the top of this post and scroll to the bottom to find a form to enter your comment.

On June 3, 2009 at the LA Trader’s Expo, I’ll randomly select a comment and that person will receive a 12-issue subscription to BackTesting Report, a $127 value.  You do need to download the report to enter because comment spam is so prevalent that we have to cross-check the comments with the mailing list.You don’t need to be at the Trader’s Expo to win. 

(Updated from 5/11 and reposted on 5/15 due to technical difficulties.  If you sent a comment before 5/15, please resend.)

Tags: free report, linkedin, MACD, MACD Histogram

StockFinder® may be my new favorite tool, but its not without quirks. While creating custom indicators, scans and layouts for BackTesting Report subscribers, I came across its shortcomings with the MACD.   The screenshot above shows a StockFinder layout with 2 MACD of different parameter settings.  The candlesticks on the price chart are color-coded green for buy signals, red for sell signals by one MACD strategy, and blue for a different MACD strategy’s sell signals.

The two main problems with StockFinder’s built-in MACDs are:

1. When you insert a MACD or MACD Histogram, they come up with simple moving averages by default instead of the standard exponential moving averages.  You need to click on them and on the right of the edit menu, change from simple to exponential moving averages. 

2.  If you change the parameter settings, say from 12-26-9 to 19-39-9, the MACD signal line still does a 9-bar moving average of the default 12-26 MACD line.   You need to delete the signal line and recreate it as a 9-bar exponential moving average of the current MACD line.

StockFinder also takes a few extra clicks to get the MACD lines and MACD Histogram in the same pane.  They need to be added individually and take up too much space if left in separate panes.

StockFinder doesn’t come with Appel’s Histogram but I found it very easy to add as a custom indicator in StockFinder’s Real Code.   For example see the StockFinder screenshot below, which shows Appel’s Histogram in an implementation of a MACD strategy excerpt from Gerald Appel’s Technical Analysis Power Tools for Active Investors.

In conclusion, StockFinder can do useful and powerful things but be sure to tweak the settings if you put a MACD on its charts.

Tags: Appels Histogram, MACD, MACD Histogram, Stockfinder

July 13, 2009:  BestFreeCharts.com is renamed to FreeStockCharts.com and this post has been updated accordingly.

FreeStockCharts.com makes nifty charts like StockFinder.

Click here for a quick little set of instructions for plotting the MACD and MACD Histogram on FreeStockCharts.com

Overall, I found FreeStockCharts.com very straightforward to use.   It is limited to the basic charting but offers real-time data from BATS.    The interface is very similar to StockFinder, which I like, but the free tool doesn’t have the scanner, backtester, custom indicators, and industry groups which make the paid tool extremely useful.

Tags: BestFreeCharts, MACD, MACD Histogram, Stockfinder

Do you use the MACD indicator or MACD Histogram?
Or follow an expert who does?

If you answered “yes”, you may be leaving money on the table without even knowing it. The most recent BackTestingReport uncovered two mistakes that even experts make with the MACD and MACD Histogram.

After independently researching the report, I sent it to the inventor of MACD, Gerald Appel. Here’s what he said:

“You do seem to have come pretty much to the same conclusions that our research staff has. Most of what you see regarding MACD was arrived at before 1990 by which time I was already advising audiences not to await crossings.”

Mr. Appel is the president of Signalert with hundreds of millions in assets under management, and he has a research staff. If you don’t have quite those resources - or even if you do - you might consider a small investment in an easy-to-read research report.

When you read the MACD Buy Signals Report, you will get an idea how much it cost US stock market participants who waited for MACD lines to cross before buying a stock. Not only that, you will be clued in to a second costly mistake, this time with the MACD Histogram. This one is so widespread, you’ll run into it even on Yahoo Finance charts.

Finally, you get critical data to decide how best to use MACD for your own gain.

Click here to order your report today

Tags: backtesting report, indicator, linkedin, MACD, MACD Histogram, macdh