The MACD Histogram is very good strength indicator / momentum indicator. The Histogram is constructed by the difference between the Fast MACD line (green Line) and the slower MACD Signal Line (blue Line).
The moment the faster MACD Line moves faster that the the MACD Signal Line, this creates a bigger gap between the two and the Histogram increases as it measures the difference between the tow. Therefore if a stock is having short term strength relative to it’s previous trend the histogram will in increase. If the trend in the short term has changed and the gap narrows the histogram will decrease.
A spread betting strategy is to trade this change of direction or strength, is to:
Spread bet Long:
When the histogram has been in a downtrend and now starts flattening and changing direction to the upside.
Spread bet Short:
when the histogram has been in an uptrend and now starts flattening and changing direction to the downside.
what you are doing is that you are capturing the momentum trade.
Next: Spread Betting the MACD Convergence Divergence
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