Macd Crypto Trading Strategy – From traditional cryptocurrency markets to cryptocurrency markets, MACD has always been and will continue to be one of the most important indicators used in technical analysis to identify timing and confirm trends.
This article will show what the MACD can detect and test strategies based on the MACD signal to help you make the right trades and hopefully go with success. We will answer questions such as what the MACD indicator is and how to use it effectively in trading crypto assets.
Macd Crypto Trading Strategy
Created in the 1970s, the MACD is one of the simplest and most effective technical indicators used to identify market dynamics. Gerald Appel (founder of MACD) is an active trader himself. He has written 17 investment books on the subject, including “Understanding MACD”, which is called a complete guide to the MACD indicator. MACD stands for Moving Average Convergence Divergence and shows the relationship between two moving averages – the 12- and 26-time exponential moving averages, or EMA.
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More precisely, the MACD is a lagging indicator, which means that it does not determine the trend – it only confirms it. Since the indicator is only based on historical data, it cannot predict future price movements before they occur, but it is not useless for forecasting. Like all lagging indicators, the MACD comes in handy by providing traders with signals and information about where the price is headed.
The MACD indicator, as the name suggests, refers to the convergence and divergence of two moving averages. The relationship between two lines can be described as either convergent or divergent, with convergent indicating when the lines move towards each other and divergent indicating when they moved away from each other.
Since MACD shows the relationship between 2 moving averages, why should you use it properly and not 2 moving averages at the same time? People say a picture is worth a thousand words – so let’s take a look at the DOGE/USDT chart.
The two exponential moving averages in the chart above are set to their default settings (12 and 26 EMA), as is the MACD line in the chart below. Every time we have a crossover in the moving averages, we have a crossover in the MACD, but only between the MACD line and the zero line. So you should not rely on the crossover between MACD and the zero line because it gives the last signals compared to MACD and the signal line. Let’s look at an example below.
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Note that we are not looking for a zero line in the MACD, but a cross between the MACD line and the indicator line. You can clearly see that the MACD crossover provides an early entry signal before the moving average crossover, thus predicting a change in advance. It allows the trader to enter and exit earlier from situations that negatively affect the overall value and profit.
Common MACD settings are 12, 26 and 9. The same settings are used in cryptocurrency trading. However, depending on the business type and goals, different values can be used. Through trial and error, you can find the best MACD settings that match your trading goals and are the best for your time and effort. However, we do not recommend newbies to play with the custom.
Now that we have learned the basics of the MACD indicator, it is high time that we know how to effectively use the MACD in your trading strategy. In the following sections, we will discuss the 3 most popular MACD trading strategies that generate strong signals – MACD linear and crossover, MACD divergence, and MACD/RSI overlap.
Differences in trading occur when the price of the underlying asset and the indicator move in opposite directions. The divergence is not independent of the MACD indicator; known for RSI and other oscillators. However, among the signals or patterns that MACD produces, MACD divergence is one of the most reliable.
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A bearish MACD divergence pattern is shown when the MACD establishes a low level similar to the high level of the stock’s price. Then it is more likely to pull or reverse the trend as the price goes up when the time drops. As a result, we see that the price of ZIL / USD fell by 8% within 3 hours after the signal. Therefore, the MACD bearish divergence is a good predictor of a reversal.
In the image above, it is clear that there is a bullish MACD divergence when the MACD forms a high relative to a low in the price of the asset. It’s a sign to see where it can turn. We can clearly observe the increase in the price of ETH / USDT by 3.3% within 12 hours after the signal. The MACD bullish divergence indicator predicts a reversal.
The MACD crossover strategy is used when the MACD line goes above or below the signal line or the zero line.
MACD falling below the indicator line is considered a bearish trend and serves as a “green flag” to sell. Conversely, a MACD that rises above the indicator line gives an upward trend, indicating that the price of the asset is rising.
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As shown in the SHIB/USDT chart above, 5 line patterns have worked well: 3 bullish signals and 2 bearish signals.
Free lines are as common as standard lines. They are easy to understand and do not require the use of specialized business knowledge.
A positive MACD value occurs when the MACD line crosses the zero line, indicating an upward trend. A bullish MACD crossover is the 12-day EMA (blue line) trading above the 26-day (red line). Conversely, a negative MACD occurs when the MACD line crosses below the zero line, indicating downward momentum. Crossing the black line means the 12-day EMA is trading below the 26-day.
In this particular example of the DODGE / USDT trading pair, the MACD crossed the zero line 3 times, giving traders 1 time to enter a short position and 2 times to enter a long position long.
Bollinger Bands, Macd And Ema
Traders can use the size of the histogram to determine the strength of the momentum itself. For example, if the MACD crosses the signal/zero line while the histogram is rising, it tells us that the trend is going strong. Likewise, if the histogram is decreasing in size, it means the trend is weak.
Note that crossing both lines and signal lines can occur many times, leading to false and difficult signals, especially for valuables such as cryptocurrencies, especially many brands like SHIB and DODGE. MACD is introduced as a useful tool for identifying market trends and timing. However, it is not always accurate and can give false and misleading signals, especially during weak or sideways price action. What we are saying is that you should not rely on the MACD indicator alone – it is better to use it together with other indicators such as the RSI to reduce the risk of errors.
RSI and MACD are two momentum oscillators that are commonly used by professional traders and traders to identify and confirm the momentum of a stock’s price. Adding the RSI to your MACD trading strategy as an indicator can add a lot of precision and clarity to your trades.
We already know how MACD works; will briefly cover the basics of the RSI indicator. For reference, RSI is a time indicator used to evaluate overbought and oversold market conditions. Our team has taken a close look at the RSI indicator and its application in cryptocurrency trading strategies. For more information, read our article on RSI.
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An example of a simple MACD / RSI strategy is the combination of these two indicators to confirm the price dynamics. If the MACD signals a buying opportunity in any way, you can add the RSI to the chart and see if it lines up. If both indicators give the same signals, you can be sure to go long or short.
Ever wonder how to read MACD and RSI at the same time? It’s not that hard. We will use RSI to signal entry levels and MACD to confirm patterns.
When the RSI hits the oversold area, indicating a long entry, you need to wait for the MACD to confirm this. If you see the MACD going above the indicator line, you can be more confident to open a long position.
When the RSI shows overbought market conditions, wait for the MACD to confirm a downtrend. If the MACD line crosses the indicator line, open a short position without thinking.
What Is The Macd Indicator And How To Use It In Crypto Trading?
You can use the RSI line to identify and confirm the direction of the trend. A line above 50 indicates an uptrend and below 50 indicates a downtrend.
Understanding how the MACD and RSI work independently allows us to use them in tandem to obtain further confirmation of strength or weakness.
Now that you know how to use MACD and RSI together for better trades, there are other indicators that you can use for your cryptocurrency trading strategy MACD and RSI. A simple moving average or Bollinger Bands can be used to confirm trading opportunities. The best way to learn
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Originally posted 2023-06-04 07:08:37.