My second technical charting tool use for my bearish reversal options trading is SMA on MACD Histogram and not the commonly used MACD with 2 lines. I found that the crossover of the MACD 2 lines are often comes later always as missed opportunities where else the 1 and 5 days SMA crossover on the MACD is a more accurate signals for my bearish reversal play.

Moving Average Convergence Divergence (MACD), developed by Gerald Appel, is both an oscillator and a trend indicator. It is the difference between a fast Exponential Moving Average (EMA) and a slow Exponential Moving Average and the fast Moving Average is continually converging towards or diverging away from the slow Moving Average. A third Exponential Moving Average, or signal line, is then plotted to identify changes in trends and market sentiment. The crossover of the fast line over the slow line is usually taken as the entry signal.

MACD cross over points (commonly used)

MACD Histograms are used in technical analysis to gauge the strength of momentum. An increasing MACD histogram signals an increase in upward momentum while a decreasing histogram is used to signal downward momentum. This difference is then plotted on a chart in the form of a histogram to make it easy for a trader to determine a specific asset’s momentum.

Adding two Simple Moving Averages lines onto the MACD Histograms will create crossover points for the entry signals. Choosing the one day and five days averages because I want to catch the early crossover signals for the bearish reversal play as it is very short term. Usually one to two weeks.

MACD Histograms with SMA (1&5) cross over points (My tools)

*Notice how the MACD Histograms with SMA (1&5) cross over points signals the crossover entry points earlier, as compare to MACD cross over points which are commonly used.

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