In this article, we will explain one of the strongest and most important technical indicators used by technical analysis experts.
This indicator is considered one of the strongest technical tools in technical analysis, as it is used alongside price movement and trading volume to confirm trends or signal the potential for a price reversal.
MACD INDICATOR 📊
First: Let's understand the role of trading volume in confirming trends
Confirming the upward trend: when prices rise with an increase in trading volume, this confirms the strength of the upward trend.
Confirming the downward trend: when prices drop with an increase in trading volume, this confirms the strength of the downward trend.
Signs of trend weakness: If prices rise while trading volume decreases, this indicates investor doubts and the potential weakening of the trend.
Second: Bullish Signals from MACD
The MACD indicator can give strong bullish signals through 3 main patterns:
1. Positive Divergence:
When MACD makes higher lows while the price drops
A rare but strong signal indicating potential rise.
2. Bullish Moving Average Crossover (the crossover with the average line):
Occurs when MACD crosses the Signal Line upwards.
A common sign but it may give false signals if not accompanied by confirmation from other signals.
3. Bullish Centerline Crossover (crossing the zero line upwards):
A signal indicating a shift in trading from negative (Bearish) to positive (Bullish).
If it follows the previous two signals, it is considered strong confirmation.
Third: Bearish Signals from MACD
On the other hand, MACD issues bearish signals when the trend weakens, including:
1. Negative Divergence:
The price makes higher peaks while MACD drops.
A strong signal of an impending drop.
2. Bearish Moving Average Crossover (the average crossover downwards):
Occurs when MACD crosses the Signal Line downwards.
A common signal but it requires additional confirmation.
3. Bearish Centerline Crossover (crossing the zero line downwards):
Indicates a shift in trading from positive to negative.
It is preferable to combine it with other signals to confirm the drop.
Fourth: The role of the Histogram in MACD
Thomas Aspray developed the MACD Histogram in 1986 to clarify the difference between MACD and the Signal Line.
How does the Histogram work?
If MACD is above the Signal Line → the Histogram appears above the zero line (positive).
If MACD is below the Signal Line → the Histogram appears below the zero line (negative).
The greater the difference between MACD and the Signal Line, the more violent waves appear in the Histogram.
Fifth: The importance of the Histogram in early prediction
The Histogram is considered a predictive tool, as it anticipates MACD crossing the Signal Line before it happens.
Example:
When Positive Divergence appears in the Histogram, this is an early warning of MACD rising and then breaking the average line.
When Negative Divergence appears, it warns of a drop in MACD followed by the formation of a Bearish signal.
Sixth: The best ways to use MACD and Histogram
1. Relying on the weekly chart to understand the overall trend.
2. Using the daily chart to determine entry and exit points.
3. Ignore weak opposite signals (e.g., a weekly downward trend with a weak daily bullish signal).
4. Focusing on strong patterns (divergences + zero line breakouts + sharp Histogram waves).
Summary
MACD is used to confirm trends and monitor shifts between upward and downward.
Histogram is a proactive tool that helps predict MACD movements and thus price movement.
Combining weekly and daily signals provides a clearer and more comprehensive view.
Accuracy.
