MACD Histogram Divergence

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.