MACD is a trading indicator used for technical analysis of Crypto prices. Understanding this indicator helps investors grasp market fluctuations. At the same time, it also helps identify potential buying and selling points to bring high profits. If you are an investor with little knowledge or a long-time investor who wants to improve your skills. Be sure to refer to the article below by Crypto Trading to update more information about MACD.
What is MACD in Crypto Trading?
MACD plays an extremely important role in Crypto trading. Therefore, to understand the MACD indicator, investors should add some of the following information.
Concept of MACD indicator in technical analysis
MACD is also known as Moving Average Convergence Divergence. This means that this indicator is a moving average convergence divergence. The MACD line is a technical indicator created by a professional investment advisor named Gerald Appel in 1979.
The indicator helps provide market fluctuations to help investors identify buy and sell signals. At the same time, to determine the MACD, investors need to rely on the difference between the 12-day and 26-day EMA averages.
The formula for calculating the MACD line in a coin trading
The formula to calculate the advanced MACD indicator is as follows:
MACD = EMA 12 – EMA 26
In there:
- It gives a positive value when the 12-day moving average is greater than the 16-day moving average.
- It is negative when the 12-day moving average is less than the 26-day moving average.
Main components of the MACD indicator
This indicator usually includes several components:
- MACD Line: This line shows the difference between the short-term EMA and the long-term EMA. When it crosses above the signal line, it can generate some buy signals. When it crosses below the signal, it can generate some sell signals.
- Signal Line: This is an EMA of the MACD line, which usually has a short-term period of 9 days. This signal line helps smooth out and generate effective trading signals.
- Histogram: This component is the difference between the MACD line and the signal line. The histogram is plotted as a bar chart and represents an increase or decrease in the price market. When the histogram increases, it can signal an increase in bullish or bearish momentum. It usually depends on some of its characteristic colors.
How to recognize MACD on the chart?
It helps investors identify market price trends. Investors need to pay attention to updating market information. Read the chart to recognize timely signs of an increasing or decreasing trend. So here is how to identify the MACD line on the chart.
- Recognize the MACD indicator by its designated color: The MACD line is usually green and the signal line is red.
- When the moving average convergence divergence gives a positive value, the short EMA is usually above the long EMA. At the same time, the further the short EMA is from the long EMA, the more the indicator has a positive value. This shows that the market’s growth trend is developing strongly.
- Conversely, if the MACD is negative, the short EMA is below the long EMA. The larger the distance between the two lines, the greater the negative increase. At the same time, it also signals that the market is showing clear signs of recession. Based on the movement of the two short and long EMA lines, the correlation can be determined.
- When the line is above the signal line and is trending up, this is an uptrend. The MACD histogram is also green and is trending up. When the MACD line is below the signal line and is trending down, this is a downtrend. The histogram is also red and is trending down.
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In-depth guide to trading with MACD
To trade with MACD in-depth, investors can do it in the following ways.
Trading steps when the Signal line and MACD intersect
When these two lines intersect, it can indicate a change in price trend or the strength of the current trend. Below is a basic way to trade with MACD that investors need to note to trade effectively.
- Cuts the Signal line from top to bottom, indicating that the market is in a downtrend and a Sell order should be placed.
- On the contrary, when this indicator cuts the Signal line from the bottom up, you should place a Buy order to make a profit because this is a sign that the market will increase shortly.
How to trade with the MACD indicator when the Histogram changes?
The Histogram indicator is a technical analysis tool used to measure the strength of a price trend. It is created by subtracting the MACD signal line from the MACD line. The Histogram can be used to determine the direction of the market’s uptrend or downtrend. It can also be used to identify potential trading points that are emerging.
Trading with MACD Histogram is based on the following transformation:
Histogram changes from negative to positive: When the Histogram changes from negative to positive, this can be a sign that the trend is turning bullish. Investors can make a buy entry when the price breaks above the resistance line. Or enter the order when the crosses above the signal line.
Histogram changes from positive to negative: When the Histogram changes from positive to negative, it is a sign that the trend is turning bearish. A sell order can be placed when the price breaks through the nearby support line. Or the moving average convergence divergence crosses below the signal line.
How to use MACD indicator on two-time frames
Traders can use multiple time frames to enter trades for accuracy. Using it indicator on two-time frames can help traders confirm trends. Combining information from two different time frames can provide many benefits, including:
Trend identification:
- Large time frame: Identify the main trend of the market.
- Small Time Frame: Identify short-term trends within a trend context.
Confirm the reversal point:
- Large Time Frame: MACD divergence on large time frames can signal a possible reversal of the main trend.
- Small Time Frame: Confirm potential reversal points based on small time frame MACD signals.
Search for entry and exit points:
- Large Time Frame: Identify potential support/resistance zones based on the main trend.
- Small Time Frame: Find more accurate entry and exit points based on moving average convergence divergence signals.
How to use MACD indicator on two time frames as follows:
- Investors determine the trend on the time frame: If the MACD crosses the Signal line upwards. This signals that the market trend is increasing. At this time, the trader will execute a Buy order on the large time frame.
- If the MACD line cuts the Signal line downward, it shows that the trend is down. At this time, investors should place a Sell order in a small time frame to ensure safety.
Revealing trades with in-depth MACD divergence signals with price lines
The MACD trading strategy with the price line is applied by many investors. However, this strategy will be more effective if the investor has a sharp sense of accurate price. The way to trade the moving average convergence divergence with the price line is done as follows:
Step 1: Determine the price trend
Identifying price trends in the market is the power to make successful investment transactions. Therefore, traders need to combine the use of many tools to analyze many time frames. To identify the ongoing trend and should only look for reversal transactions when the current trend weakens.
Step 2: Place orders according to price trends
- Place a Buy order: When the Downtrend shows signs of weakening. At the same time, this appearance is a divergence factor between the MACD and the price line.
- Place a Sell order: When the Uptrend shows signs of weakening and the MACD line creates a divergence signal with the price line.
Note: This strategy will usually be more effective if the trader trades on higher timeframes such as H4, and D1. As for lower timeframes, such as M15, and M30, the signal may be noisy. In these cases, the trader should be flexible in combining with price action. At the same time, perform multi-timeframe analysis of the up and down waves and adjustments on higher timeframes.
Combining the use of MACD with other indicators
In addition to combining with the above indicators, it is also combined with several other indicators. Below is a combination of the Stochastic indicator and the RSI indicator combined with MACD.
How to combine MACD line in Coin Trade with Stochastic
It helps identify overbought and oversold areas that reach extreme highs and lows. This can show investors that the market is overbought and a correction may be imminent. Stochastic is an indicator that measures price momentum, specifically comparing closing prices. Calculated with the range of market prices over a certain period. Stochastic shows trading signals based on several factors such as:
- As prices increase, the closing price will tend to move closer to the upper boundary of the price range.
- When prices fall, the closing price tends to move closer to the lower end of that price range.
Combining Stochastic and MACD helps investors have a more accurate analysis of price trends. At the same time, investors can rely on it to make transactions:
- When the Stochastic indicator combined with MACD is above 10. That is the overbought signal. Investors should consider placing orders appropriately.
- When the combined indicator between MACD and Stochastic is lower than -10. This is an oversold signal, investors should consider placing a buy order.
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Combining MACD with RSI in trading
RSI is a relative strength indicator that calculates the ratio between price increases and price decreases. This indicator also shows the overbought and oversold conditions of the market.MACD can measure the relationship between EMA 12 and EMA 26. This helps to identify price trends and find more accurate entry points. Combining it with RSI will give investors a more comprehensive view of market trends. When the signals of both are consistent, the level of price movement forecast will be more reliable.
Specifically, implementing the combination of MACD and RSI helps investors:
- Trend Confirmation: When both MACD and RSI show the same trend, the reliability of that trend is higher.
- Identifying a reversal: When the price moves in one direction but the MACD or RSI moves in the opposite direction. This could be a sign that the trend is about to reverse. When it crosses above or below the signal line, or when the RSI crosses above or below the 70/30 level. This is a sign that the trend is about to change.
- Measuring Overbought and Oversold Levels: RSI can be used to determine overbought and oversold levels of an asset. While it can be used to determine whether the current trend is losing momentum.
The role of MACD line in coin trading
It line plays a role in determining whether the price trend of the market is up or down. Its value is usually calculated as the difference between two exponential moving averages, the EMA 12 and the EMA 26.
MACD is an indicator used to predict effective price trends based on the information provided. Investors will rely on this information to confirm the development of trends in the market.
The histogram chart is a reference for changing the momentum of market trends. If the bars are getting lower, it will signal that the trend is weakening and there is a possibility of a reversal. However, on the contrary, the bars are getting higher, which will show that the trend is gradually taking a stronger direction.
MACD is capable of predicting long-term market trends with exceptional accuracy. It should be combined with weekly time frames for best results.
For short-term traders, you should check the MACD on the weekly chart. To see what the main price trend is before entering the short time frame. At the same time, to ensure safety in trading, you should not make transactions against the trend.
When the price moves in one direction it moves in the opposite direction. The MACD then acts as a signal that the trend is about to reverse. When it creates a lower high and lower low than the previous high and lower low. This can be a sign that the current trend is weakening.
Conclude
Using the MACD indicator in investment trading is very popular and trusted by many investors. However, like any other indicator on the market, this indicator is not guaranteed to be 100% correct. Therefore, to trade effectively with MACD, investors need to continuously learn and gain experience in trading in the market. The above article by Crypto Trading has provided some information about MACD. Hopefully, after you have finished reading the above information, you will have more useful knowledge. I hope you will achieve the desired results and success in the investment process. In particular, don’t forget to click follow to update more useful information about investing in the cryptocurrency market.
FAQS
How does MACD work?
The MACD line is calculated by subtracting the short-term moving average from the long-term moving average of the price. The signal line is a short-term EMA applied to the moving average convergence divergence line. The histogram shows the difference between the moving average convergence divergence line and the signal line.
Can MACD be used to trade cryptocurrencies?
Yes, this indicator can be used to trade coins. However, since the cryptocurrency market is more volatile, it is important to be aware of the risks involved.
What is the difference between MACD and RSI?
Both indicators are complementary tools and should not be used as the sole trading strategy. However, MACD is used to measure the strength and direction of price trends. While RSI measures the overbought and oversold levels of an asset.
