The MACD histogram is the main reason why so many traders rely on this indicator to measure momentum , because it responds to the speed of price movement. Indeed, most traders use the MACD indicator more frequently to gauge the strength of the price move than to determine the direction of a trend.
Here I show how it work at the time frame 30 min. Best trading session: London and New York. NOTE: Currency traders are uniquely positioned to take advantage of this strategy because with this strategy, the larger the position, the larger the potential gains once the price reverses — and in Forex, you can implement this strategy with any size of position and not have to worry about influencing price.
Traders can execute transactions as large as , units or as little as 1, units for the same typical spread of three to five points in the major pairs. In effect, this strategy requires the trader to average up as prices temporarily move against him or her. This, however, is typically not considered a good strategy. However, in this case the trader has a logical reason for doing so — the MACD histogram has shown divergence, which indicates that momentum is waning and price may soon turn.
In effect, the trader is trying to call the bluff between the seeming strength of immediate price action and the MACD readings that hint at weakness ahead. Still, a well-prepared trader using the advantages of fixed costs in forex, by properly averaging up the trade , can withstand the temporary drawdowns until price turns in his or her favor.
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Whew, we need to crack our knuckles after that one! From the chart above, you can see that the fast line crossed UNDER the slow line and correctly identified a new downtrend. Notice that when the lines crossed, the Histogram temporarily disappears. As the downtrend begins and the fast line diverges away from the slow line, the histogram gets bigger, which is a good indication of a strong trend. This suggested that the brief downtrend could potentially reverse.
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TRADED MACD DIVERGENCE 100 TIMES (REVEALING PROFITS)