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What Is a MACD Histogram?

K.C. Bruning
K.C. Bruning

A moving average convergence divergence (MACD) histogram is a type of bar chart that calculates the difference between a stock price and its exponential moving averages (EMAs) over a nine-day period. The EMA is a filter that uses exponentially decreasing weighting factors when analyzing old data. An MACD histogram typically appears on a chart with both the MACD and nine-day EMA lines. It consists of a series of varying bars that are arranged horizontally and move vertically above and below the zero line on the chart.

Analysts use the MACD histogram to track changes in the way a stock is trending. It can provide guidance about when to buy or sell. For example, if the EMA and MACD cross, the histogram doesn’t show a difference between the two. This indicates to the analyst that the price point is ideal and it is time to buy.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

A MACD histogram can also help an analyst to plot when to take action with a particular stock. By tracking the bars on the histogram, the analyst can detect both the development and pace of trends. With regular analysis of the chart, it can be possible to anticipate when the EMA and MACD will cross.

The significance of the MACD histogram depends upon the context in which it is used. A chart that shows trends over the course of a day will often be exponentially different from the analysis of weekly activity. An analyst will often look at histograms from several time periods to fully understand how a stock is trending.

Analysts create and track the MACD histogram on computers. Sophisticated programs can enable them to view the stock from several perspectives. This can give analysts not only an idea about where a trend is headed, but also an idea about how quickly it is changing. Charting with a histogram can also reveal the volume of trading, which is another strong indicator of value.

MACD histograms were created by Thomas Aspray in 1986. He began his career as a biochemist, but a side interest in analyzing financial markets led to a vocation shift in the 1970s. By the early 1980s, he was director of research for a financial firm. In addition to the MACD histogram, Aspray used his knowledge of science and computers to create many techniques that have remained popular among analysts for several years.

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