jntrade said:
Hi Amit,
I attached a graph of polaris with histogram at the bottom.
I marked an area far right with an arrow.
When prices go up Histogram declines and says it is Bearish divergence and it is strong signal.Is it that shows in the chart?
thanks
JN
Hi JN...do go to this link and see the post there and the attached chart. You may have seen it already, but do have another look:
http://www.traderji.com/41774-post3472.html
If you've read the post, then first thing first, do remember, MACD is a
trend following indicator.
MACD is not a reliable indicator where price action is flip-flop.
I'm saying flip-flop to basically describe a descending triangle, which from the long term chart of Polaris can be clearly seen.
There is no real energy, meaning momentum, in such a long term descending triangle.
MACD is also indicative of the rate of change in momentum in the slow and fast EMAs. These EMAs are the basic building blocks of MACD.
In the descending triangle, note how MACD spends most of its time below the zero line. It manages to keep above this line in very brief periods.
One more aspect to remember while taking MACD readings is the significance of the centerline crossover.
This will depend on the previous movement of price and MACD.
If MACD along with trending price is positive for a good period of time, and then begins to slope down to cross sub-zero territory, it would be considered that the price trend has turned decisively bearish.
However, if MACD has been negative for a few months, breaks above zero and then back below zero, it may be seen as more of a sideways correction. Obviously, lower highs are being made while the bottom line is being held, as is the case with the descending triangle in Polaris. There are no clear, sustained and robust crossovers there.
For all of the above reasons, dont go looking at MACD in such a chart.
On to MACD Histograms.
What MACD does is, it measures the difference between the two EMAs, usually 12 and 26 EMAs. Usually, a 9
EMA of MACD is plotted along side to act as a trigger line.
A positive MACD indicates that the 12 EMA is above the 26 EMA, and vice versa when MACD is negative. The signal line crossover is the trigger.
However MACD crossover is a lagging indicator and misses important moves.
So the Histogram was developed by someone whose name I dont remember, and can often forecast oncoming MACD/signal line crossovers.
It is normally plotted as a complementary indicator within the MACD window.
It represents the
difference between MACD and the 9 day EMA of MACD, meaning the signal line.
Not to be confused here.
The signal line, usually a 9 day EMA of MACD is separately plotted along with MACD.
The Histogram is plotting the difference between MACD and the 9 day EMA of MACD.
In a sense then, the Histogram is an indicator of an indicator.
Again, divergences between MACD and the Histogram are used to anticipate MACD/signal line crossovers.
A positive divergence in the Histogram indicates that MACD is strengthening and could be on the verge of a bullish crossover.
A negative divergence in the Histogram indicates that MACD is weakening.
Notice in Roltas chart the various red trendlines.
At trendline A, the Histogram is already showing a negative divergence, while the MACD/signal line are still climbing. These turn around later. So here the Histogram has given a negative divergence for MACD well in advance of its crossover, and also before the actual price reversal.
At trendline B, the Histogram has given a positive divergence well before the MACD and the price reversal.
Trendlines XXX best describe how the Histogram better and earlier indicates the moves in MACD.
Same with trendline C, the negative divergence in the Histogram precedes the MACD divergence.
Divergence at trendline D is still panning out.
Thats it JN.
Get back when you like.
