how histograms work
histograms are commonly used in statistics to demonstrate how many of a certain type of variable occur within a specific range for example a census focused on the demography of a town may use a histogram to show how many people are between the ages of zero 10 11 20 21 30 31 40 41 50 51 60 61 70 and 71 80 this histogram example would look similar to the chart below let s say the numerals along the vertical access represent thousands of people to read this histogram example you can start with the horizontal axis and see that beginning on the left there are approximately 500 people in the town who are from less than one year old to 10 years old there are 4 000 people in town who are 11 to 20 years old and so on histograms can be customized in several ways by analysts they can change the interval between buckets in the example referenced above there are eight buckets with an interval of ten this could be changed to four buckets with an interval of 20 another way to customize a histogram is to redefine the y axis the most basic label used is the frequency of occurrences observed in the data however one could also use percentage of total or density instead investopedia julie banghistograms vs bar chartsboth histograms and bar charts provide a visual display using columns and people often use the terms interchangeably technically however a histogram represents the frequency distribution of variables in a data set 1 a bar graph typically represents a graphical comparison of discrete or categorical variables you can create a histogram using microsoft excel using the histogram tool associated with the statistical icon 2histogram example the macd histogramtechnical traders may be familiar with a notable histogram example the moving average convergence divergence macd histogram it s a popular technical indicator that illustrates the difference between the macd line and the signal line for example if there is a 5 difference between the two lines the macd histogram graphically represents this difference the macd histogram is plotted on a chart to make it easy for a trader to determine a specific security s momentum a histogram bar is positive when the macd line is above the signal line and negative when the macd line is below the signal line an increasing macd histogram indicates an increase in upward momentum while a decreasing histogram is used to signal downward momentum investopedia sabrina jiangtrading with the macd histograma weakness of using just the macd line and signal line is the lagging nature of the signal given specifically when the macd line crosses over the signal line the trading signal lags price as the two lines are moving averages by definition they do not cross until a price move has already occurred this means that traders forego a portion of an initial move traders shouldn t overlook the macd histogram when using the macd indicator to make trading decisions the macd histogram helps to alleviate the signal lag problem by generating earlier entry signals traders can track the length of the histogram bars as they move away from the zero line for instance they may feel that the histogram is generating a trading signal when a histogram bar is shorter in length than the preceding bar once the smaller histogram bar completes traders might open a position in the direction of the histogram s decline other technical indicators should be used in conjunction with the macd histogram to increase the signal s reliability moreover traders should place a stop loss order to close out the trade if the security s price does not move as anticipated 