Stocks & Commodities V. 25:3 (10-13): Letters To S&C by Technical Analysis, Inc.

Stocks & Commodities V. 25:3 (10-13): Letters To S&C by Technical Analysis, Inc.

The editors of S&C invite readers to submit their opinions and information on subjects relating to technical analysis and this magazine. This column is our means of communication with our readers. Is there something you would like to know more (or less) about? Tell us about it. Without a source of new ideas and subjects coming from our readers, this magazine would not exist.

ALEXANDER ELDER’S MACD HISTOGRAM

Editor,

In David Penn’s article, “Trading the MACD Histogram, Part II,” (Working-Money.com, 12/29/ 2006), he mentions “P-p-P” and “m-M-m” patterns when referring to “change in slope on the second peal or trough in the histogram.” I would appreciate it very much if you could explain this more in detail.

JOSE NOGUEIRA DOS SANTOS

Technical Writer David Penn replies:

Thank you for writing. Those specific symbols come from Alexander Elder’s excellent book, "Trading For A Living." I was unsure if they would be too confusing for readers. The idea is simple, but sometimes explaining it using other tools only makes it seem more complicated. The “P-p-P” and “m-M-m” patterns are Elder’s shorthand way of describing how the histogram moves that can be used as triggers to initiate positions.

For example, the “P-p-P” pattern refers to any instance when the histogram is at one level, dips down to a lower level, then rises back up. Numerically, this could be expressed as the following set of MACD histogram readings: -0.221, then -0.230, then -0.208. Those histogram readings were taken from a daily chart of the QQQQ on December 22, 26, and 27, with a buy signal created on the 27th.