using the MACD histogram for convergence
One of the most popular indicator-based strategies in the Forex market is trading convergences using the MACD indicator. Convergences are a powerful and effective technique, especially suitable for taking short (selling) positions. In this article, we will explore how to identify convergences on the chart and trade them using the MACD. This strategy is simple yet highly efficient. As you know, like other technical indicators, the MACD follows price behavior and reacts similarly. The histograms of this indicator are very important for us because, with their help, we can detect convergences on the chart.
Why are the histograms of the MACD important to us?
The histograms of the MACD indicator indicate the strength of the market trend as well as the power of buyers and sellers. Red histograms pointing downward represent the strength of the sellers, while green histograms pointing upward indicate the strength of the buyers. For our analysis, the green histograms and the upper part of the MACD are especially important to gauge the buyers’ strength in the market.
How do I find convergence in the chart using histograms?
It is quite easy to find convergence on the chart using the histograms of the MACD indicator, but it requires a bit of precision. If the price on the chart has formed higher highs and continues to rise, while the green histograms of the MACD have formed lower highs, this indicates a convergence. This divergence between price action and indicator signals a potential weakening of the trend. To spot this, we draw one trendline on the green histograms of the MACD and another trendline on the price chart.
Photo by TradingView
As you can see in the image above, the indicator’s histograms have formed lower highs, indicating a decrease in strength, while the price on the chart has formed higher highs. This is a clear sign of convergence. After drawing a trendline on the histograms and another on the highs formed on the price chart, you can observe that the price sharply moved downward and declined.
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