Posted by forex at 2:38 AM
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1. Add the indicator to any of the free charting services that utilize it, such as Stockcharts.com, Bigcharts.com or IncredibleCharts.com. Each of these will enable you to add the MACD histogram at the bottom of your chart.
2. Use the default setting for the indicator. Most default settings will utilize a 12-day and 26-day exponential moving average for the two moving averages and nine-day exponential moving average for the MACD signal. You can play with the numbers if you want, but you may find that the standard setting will work just fine.
3. Understand the parts of the MACD histogram indicator. You will notice a center line of 0 in the indicator and solid bars (or shaded area) that will appear above or below the center line. Bars below the center line indicate negative sentiment and bars above the center line suggest a positive time for investing. The bars represent the two moving averages used in the indicator.
4. A buy signal is indicated when you see the bars move from below the center line to above the center line. However, it is best to use the indicator this way in conjunction with other indicators or as confirmation of another technical analysis indicator that you are using. If you were to use it as a stand alone indicator, it would generate many false signals. However, if you must use it in a stand alone fashion, make sure the stock you are trading is in an overall uptrend.
5. A sell signal is indicated when the bars (or shaded area) cross below the center line from above. Heed the same cautions listed above in Step 4. If you are shorting the stock, make sure the overall trend of the stock is down and use the MACD histogram as an entry point for the next downward leg.
6. The most powerful way use the MACD histogram in trading stocks is to look for a divergence in the indicator. Simply put, if the stock price is making a new near-term low but the MACD histogram is not making a new low, it may be an indication that the downward trend has weakened. The stock may be poised for a rebound and in doing so may provide you with a trading opportunity.