In the article “MACD – non-standard use on Forex”” I already described the technical indicator FX5 MACD DIVERGENCE, which determines the divergence of the MACD indicator.
In this article, I present to your attention another technical indicator for the MT4 trading terminal, revealing the divergence of the MACD indicator.
Let me remind you that the MACD indicator (Moving Average Convergence / Divergence) is one of the most popular technical indicators and was developed by Gerald Appel in 1979.
The “MACD Histogram” indicator displays the MACD line, the signal line and the MACD convergence-divergence histogram in a separate window of the terminal, and also allows you to find divergences between the indicator and the price chart of three main types – classic, hidden and extended.
In the chart above you see the “MACD Histogram” indicator applied to the 4-hour AUDUSD chart. In fact, the indicator displays the standard MACD indicator and highlights the divergences found on it. These divergences are highlighted by red or green lines on the price chart and indicator, depending on the type of divergence – bullish or bearish. Additionally, the indicator with arrows of different colors suggests the direction of opening deals.
The advantage of the indicator is that it has a very wide range of settings. This allows you to flexibly configure the indicator for use in any forex trading strategy. In the figure below, you see an indicator on the chart of the USDCHF currency pair, configured to display only the MACD line, signal line and divergences.
Configurable parameters of the “MACD Histogram” indicator.
- Fast EMA Period – period of the fast exponential moving average;
- Slow EMA Period – period of the slow exponential moving average;
- Signal SMA Period – period of the signal exponential moving average;
- MACD line – enable the display of the MACD line;
- Signal line – enable the display of the signal line;
- MACD Histogram divergence indicator – enable the search for divergences with a histogram;
- MACD Line divergence indicator – enable the search for divergences with the MACD line;
- Search classical – enable the search for classical divergences;
- Search hidden – enable the search for hidden divergences;
- Search extended – enable the search for advanced divergences;
- Show trend lines – enable the display of divergence trend lines;
- Show divergence indicator – enable display of the divergence indicator;
- Show alerts – enable an alert when a divergence is found on current bars.
The MACD Histogram indicator greatly facilitates the search for divergences on the price charts of currency pairs. However, you should clearly understand that the identification of divergences, and even more so their correct interpretation, is a rather complicated analytical process and any indicator will often be mistaken.
Any divergence indicator must be used precisely as an informational and auxiliary tool. You must independently check and adjust each indicator signal and in no case open trading positions on the basis of only divergence indicator signals.
The indicator is configured to analyze the nearest extremes and does not take into account intermediate or more distant peaks and troughs. And the extremes of prices themselves are not always determined correctly. And he approaches the analysis formally, without taking into account the real market situation.
Accordingly, the higher the timeframe of a currency pair, the less errors there will be in determining the High and Low by this indicator. I recommend using it on timeframes from 1 hour and above. 4-hour charts, in my opinion, are the most optimal for this indicator.
It is very useful in that it can analyze and warn you about emerging divergences on any number of currency pairs. But your task is to correctly analyze the signals and make informed decisions.
You can download the divergence indicator “MACD Histogram” absolutely free and without registration in the form of a zip archive from the link – MASi_MACDHist.mq4.
Be prudent, observe risk management and trade in a plus.