In this article, I present to your attention another technical indicator for the MT4 trading terminal that reveals the divergences of the MACD indicator.
Let me remind you that the MACD (Moving Average Convergence / Divergence) indicator is one of the most popular technical indicators and was developed by Gerald Appel in 1979.
Indicator “MACD Histogram” displays the MACD line, signal line, and 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.
On the chart above, you see the indicator “MACD Histogram” applied to 4 hours AUDUSD chart. In fact, the indicator displays the standard MACD indicator and highlights the found divergences on it. These divergences are highlighted with 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 picture below, you see the indicator on the chart of the USDCHF currency pair, configured to display only the MACD line, signal line, and divergences.
Configurable indicator parameters “MACD Histogram”.
- Fast EMA Period – period of the fast exponential moving average;
- Slow EMA Period – the 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 search for divergences with histogram;
- MACD Line divergence indicator – enable the search for divergences with the MACD line;
- Search classical – enable search for classic divergences;
- Search hidden – enable search for hidden divergences;
- Search extended – enable search for extended divergences;
- Show trend lines – enable display of divergence trend lines;
- Show divergence indicator – enable the display of the divergence indicator;
- Show alerts – enable notification when divergence is found on the current bars.
Indicator “MACD Histogram” greatly facilitates the search for divergences on the price charts of currency pairs. However, you must clearly understand that identifying divergences, and even more so their correct interpretation, is a rather complicated analytical process and any indicator will often make mistakes.
Any divergence indicator should be used precisely as an informational and auxiliary tool. You must independently check and correct each indicator signal and in no case open trading positions based only on the signals of the divergence indicator.
The indicator is configured to analyze the nearest extremes and does not take into account intermediate or more distant peaks and troughs. And the price extremes themselves are not always determined correctly. And he approaches the analysis formally, without taking into account the real market situation.
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.
Accordingly, the higher the timeframe of the currency pair, the fewer errors will be in determining the minimums and maximums for this indicator. I recommend using it on timeframes of 1 hour or more. 4-hour charts, in my opinion, are the most optimal for this indicator.
You can download the divergence indicator absolutely free of charge and without registration “MACD Histogram” in the form of a zip archive from the link – MASi_MACDHist.mq4.
Or download it from the author’s page on the MQL5 website – MACD Histogram – indicator for metatrader 4.