Forex Talking

Divergences between MACD-Histogram and Prices occur only a few times a year in any given market, but they give some of the most powerful messages in technical analysis. These divergences identify major turning points and give "extra-strength" buy or sell signals. They do not occur at every important top and bottom, but when you see one, you know that a major reversal is probably at hand.
When prices rally to a new high, but MACD-Histogram traces a lower top, it creates a bearish divergence. A lower top in MACD Histogram shows that bulls are internally weak even though prices are higher. When bulls are running out of steam, bears are ready to grab control.
Bearish divergences between MACD-Histogram and prices identify weakness at market tops:
They give sell signals when most traders feel excited about a breakout to a new high!

Sell short when MACD-Histogram ticks down from its second, lower top, while prices are at a new high. Place a protective stop above the latest high. As long as prices keep falling to new lows and MACD-Histogram keeps going lower, it confirms the downtrend. If prices fall to a new low but MACD-Histogram traces a more shallow low, it creates a bullish divergence. It shows that prices are falling out of inertia, bears are weaker than they seem, and bulls are ready to gain control. Bullish divergences between MACD-Histogram and prices identify strength at market bottoms. They give buy signals when most traders feel fearful about a breakdown to a new low!

Buy when MACD-Histogram ticks up from its second, more shallow bottom while prices are at a new low. Place a protective stop below the latest low. If a bullish divergence between MACD-Histogram and price is aborted and prices fall to a new low, you will be stopped out. Continue to watch MACD-Histogram. If it traces a more shallow third bottom while prices decline to a new low, you are dealing with a "triple bullish divergence9'-an especially strong buy signal. Buy again as soon as MACD-Histogram ticks
up from its shallow third bottom. The reverse applies to shorting triple bearish divergences.