Understanding MACD (Part 3)

04/30/2008 12:00 am EST


MACD (Moving Average Convergence / Divergence) as a histogram the lines plotted on the bottom of the MACD are trying to tell a story as well, and traders had better listen up! Moving average convergence divergence was not randomly chosen as this indicator’s name. Through the histogram we can visually gauge convergence (moving average lines of MACD moving towards one another) and divergence (moving average lines of MACD moving away from one another).

Notice: as the moving average lines cross the histogram will show no lines whatsoever, indicating to traders that lines (prices) should now start in a new direction.

More in part 4 tomorrow.
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