One of the tools that helps you analyze effectively is MACD. MACD for crypto is one of the momentum indicators that every trader needs to understand clearly. MACD can help traders identify trends, and buy and sell signals or divergences easily. Join Crypto Trading to learn more about the application of this indicator in cryptocurrency trading strategies.
What is MACD for crypto?
What is MACD? The term MACD is very familiar to financial investors. Especially in stock and forex trading. So is MACD for crypto different? Similarly, MACD is also a popular indicator in technical analysis of the cryptocurrency market.
The indicator was invented by Gerald Apple in the late 1970s. MACD stands for Moving Average Convergence Divergence, which means Moving Average Convergence/Convergence. As the name suggests, MACD is a tool that determines the average level of change. It is also a signal that helps you identify a new trend, down or up.
Instructions on how to read the MACD indicator
To maximize the benefits of the MACD line with Trade Coin, you need to understand each component. As well as the role and interaction between them. From there, traders can evaluate the direction and level of the trend. At the same time, make the right decisions according to the signals from these components.
Components of MACD for crypto
The MACD indicator comprises the MACD line, the signal line, and the histogram. The default MACD parameters are 12, 26, close, 9. Specifically, we will learn the concept and role of each component right after this.
MACD line
MACD for crypto is an indicator that illustrates the difference between 2 moving averages. The formula for calculating this value is to take the 12-period EMA line – the 26-period EMA line. The MACD line is considered the main component that makes up the MACD indicator. It clearly shows the relationship between the 2 EMA lines. Thereby, traders can predict trends as well as grasp buying and selling signals well.
- When the MACD line moves to the 0 value line, the signal is an uptrend, momentum increases, and the potential position will be buying.
- When this line moves below the 0 value line, the signal is a downtrend, momentum is down, and the best position is to sell.
Signal Line
The signal line is derived from the 9 EMA of the MACD line. This line gives the trader a buy or sell signal, helping to find a reversal point. If:
- MACD line crosses above the signal line, which is a bullish signal, you should open a buy position.
- MACD line crosses below the signal line, which is a bearish signal, you should open a sell position.
Frequency chart
This component provides a visual representation of the difference between the two components mentioned above. Through this, traders can clearly see the possibility of a trend reversal being established. At the same time, determine the next direction of price movement.
A chart with positive values indicates an uptrend and a negative value indicates a downtrend. Traders can better understand the direction and strength of a trend by examining this chart.
See more: Know MACD for perfect crypto transactions
Combine MACD indicator with some other indicators
Combining MACD for crypto with some other popular indicators helps traders have a comprehensive view of the market. From there, verify the reliability of trading signals, thereby making wise decisions.
Combining RSI and MACD
- If the MACD line moves from top to bottom and crosses below the Signal line, a downtrend is likely => Sell signal.
You can combine some other indicators, trendlines, resistance levels, support levels,… to determine the most reasonable price zone to enter an order.
How do we trade with Histogram and MACD divergence?
Divergence occurs when the MACD indicator and the price move in opposite directions. This indicates a trend reversal or a sharp increase/decrease.
- Bullish divergence (bottom) occurs when the next bottom is lower than the previous bottom but the MACD line makes a higher bottom than the previous bottom. At this time, the Histogram changes from red (-) to green (+) => Bullish signal => Traders should Buy.
- Bearish divergence (peak) occurs when the price makes a higher peak but the MACD line makes a lower peak. At this time, the Histogram changes from green (+) to red (-) => Bearish signal => Traders should Sell.
See more: MEXC: Open a MEXC account, invest effectively
Consider the MACD indicator in 2 time frames
Traders need to look at the price trend in a larger time frame and trade in that direction. For example, you are trading on the H4 time frame. So, the larger time frame to determine the next trend is D1.
- If you see the MACD line cross above the signal line, the trend in D1 is up => You need to find a Buy point on the H4 frame by waiting for the MACD to cross above the Signal line in the H4 frame.
- If you see the MACD line cut below the signal line, the trend in D1 is down => You need to find a Sell point on the H4 frame by waiting for the MACD to cut down the Signal line in the H4 frame.
Note: Do not look for entry points in the H4 frame against the trend in the D1 frame.
Conclude
Hopefully, the above article on Crypto Trading is really useful and contributes to your success. MACD for crypto or any indicator, as long as you understand it clearly and apply it appropriately, you will have good profits. In particular, no indicator is accurate. Therefore, to increase efficiency in trading, combine the MACD line with one or a few other indicators to increase investment performance. Don’t forget to follow our upcoming articles to discover more useful information!
FAQs
What is the MACD indicator and how does it work?
MACD is a popular indicator in technical analysis. It is classified as a momentum indicator and was developed by Gerald Appel in 1970. This indicator is used to predict the strength, trend, momentum, and duration of price trends. The operating principle is based on the relationship between two EMA lines.
Is the MACD indicator a bullish or bearish signal?
Both. When the MACD line goes up from below and crosses above the Signal line, the MACD signal is bullish. Conversely, if the MACD goes down from above and crosses below the Signal line, the MACD signal is bearish. When the MACD line is far below the 0 value line, a strong signal is about to appear.
Which indicator is best to combine with the MACD indicator?
There are two types of indicators: RSI and Stochastic. MACD indicator helps traders determine the direction and strength of the direction. RSI helps traders determine the level and speed of price fluctuations. Stochastic is the best indicator to help determine overbought/oversold conditions. When combining them, you will have the most comprehensive overview of the market, optimize profits, and minimize risks.
