the hAnDbook of technIcAl AnAlySIS12‐period EMA crosses below the 26‐period EMA, the MACD falls below the zero
level.
The MACD histogram is a double detrended oscillator. It is the difference
between the MACD and its nine‐period signal line. Again, as we can see from
Figure 8.19, every time the MACD tests or crosses over its signal line, the histo-
gram moves to its zero level (shown by dotted vertical arrows). The histogram
tends to react faster than the MACD by reversing before it. Detrending removes
the lag from oscillators and as such, double detrending creates an even more re-
sponsive oscillator.
The MACD and its histogram may be analyzed for buy (bullish) and sell
(bearish) signals using any of the eight forms of oscillator analysis described in a
previous section.
In Figure 8.20 we see historically overbought levels in the MACD signaling
potential tops in the hourly USDJPY.
average true range (atr)
Created by Welles Wilder, the average true range tracks the volatility associated
with price activity. It does this by tracking the true range of each bar over a
specified number of periods and finding the average of that value. True range is
defined as the largest of the three following price ranges:
■ (^) The range of the current bar
■ (^) The difference between the previous close and the current high
■ (^) The difference between the previous close and the current low
fIgure 8.19 MACD Action of the Daily Chart of Goldman Sachs Group Inc.
Courtesy of Stockcharts.com