What is the MACD indicator?

The MACD (Moving Average Divergence and Convergence) is an oscillator used to identify buy and sell points in good price zones based on the psychology of the market. It was created by Gerald Appel in 1970, and it is widely adopted to this day.

The nature of the MACD.

• MACD = EMA(12 period)-EMA(26 period)

The EMA is very effective in trading, it can be used as support and resistance levels and determine price trends. You can learn more about this indicator here.

As you can see when EMA 12 crosses EMA 26, the MACD line will intersect with the 0 line (Zero line), when EMA12 is above EMA 26, MACD will be positive, EMA12 but below EMA26, MACD will have a positive value. negative, so the MACD line will move around the zero axis.

• Signal = EMA (9 periods) of MACD
• Histogram = MACD – Signal

Histogram is called the essence of MACD, When MACD is above the signal line, the histogram will have a positive value and it is on the 0 axis (zero line), MACD that is below the signal line will have a negative value and it will be below the signal line. axis 0 (zero line).

The nature of MACD is similar to the nature of EMA, so MACD crossing the 0 axis from below indicates an uptrend, while MACD crossing the 0 axis from top to bottom will signal a downtrend.

Why choose 12, 26, 9

For the financial markets, a week has 7 days, usually they only work 6 days and they will have Sunday off, so the number 12 represents 2 weeks, 26 represents 1 month and 9 is 1.5. week. They take the numbers 12, 26, 9 also to assess how investors’ sentiment in the past 2 weeks, 1 month and 1.5 weeks. So you can change these numbers, depending on the market in which you invest and the experience of each person.

How to use MACD in trading coin

The simplest way to use it is when the MACD line crosses the signal line, this is a buy signal, the MACD crosses the signal line, this is a sell signal. However, this method is often ineffective, it often gives late signals, making you lose the opportunity to buy (sell) at a good price. Here, I will introduce you to some other ways of using RSI that many traders are still using.

MACD Divergence

Looking at the chart above, we see that the price chart shows that the following bottom is lower than the previous one, but the MACD shows that the following low is higher than the previous one, showing that the price has a very high possibility of a reversal at the following bottom, but you should combine more about how read candlestick charts and some price patterns or RSI to see if this area is oversold, from which we can make a more reliable entry decision.

The signal to take profit or sell short in Forex is similar to the signal to buy, this is for you to research yourself.

MACD histogram

Histogram is the quintessence of MACD, so it will solve the downside of MACD lag. As the MACD divergence I introduced above, in the crypto market it will be very rare and give us very few trading opportunities. Here I introduce to you MACD histogram divergence, I have applied and found it very effective.

As you can see in the picture above the price chart gives us a higher high than the previous high and MACD also gives us a higher high than the previous high so there is no sell signal here, on the other hand the histogram gives us a lower high than the previous high. Before showing the histogram divergence with the price chart, we can enter a sell order at this point and without delay waiting for the MACD to cross the signal line, we can enter a sell order.

Histogram gives us a buy signal similar to a sell signal, this part, I give up the sell.

In trading coin there are always two sides, so you should allocate capital appropriately to manage risks and improve your ability to bear interest.

Limitations of MACD

MACD is the difference of two EMAs, so it also has the disadvantage of EMAs that it is very sensitive to price because MACD will be better used for long term time frames.

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Robert

Bitcoin Magazine

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