A visual representation of the McClellan Oscillator and its signal line.
Overview
The McClellan Histogram is a visual representation of the McClellan Oscillator and its signal line. This difference is plotted as a histogram, making zero-line crossovers and divergences more easily identifiable.
The McClellan Histogram plotted on a Daily USD/MXN chart 4/18/2011
Source: VT Trader
Interpretation
The McClellan Histogram is momentum indicator. As such, it can be traded in much the same way as the MACD indicator. There are two basic techniques for using the McClellan Histogram to generate trading signals.
Histogram / Zero-Level Crossover: When the histogram crosses above zero a buy signal is given. Alternatively, when the histogram crosses below zero a sell signal is given.
Divergence: Looking for divergences between the McClellan Histogram and price can prove to be very effective in identifying potential reversal and/or trend continuation points in price movement.
There are several types of divergences:
Classic Divergence (aka: Regular Divergence)
* Bullish Divergence = Lower lows in price and higher lows in the McClellan Histogram
* Bearish Divergence = Higher highs in price and lower highs in the McClellan Histogram
Hidden Divergence (aka: Reverse, Continuation, Trend Divergence)
* Bullish Divergence = Lower lows in McClellan Histogram and higher lows in price
* Bearish Divergence = Higher highs in McClellan Histogram and lower highs in price
