How to Read MACD in Crypto Trading

By trading large swings and divergences you reduce the chance of whipsaws from minor fluctuations. MACD Divergences are suitable for trading trending stocks that undergo regular corrections. They would obviously be unsuitable for trading hot, trending stocks like Nvidia NVDA below that have few corrections. Microsoft Corporation weekly chart is plotted below with  26-day MACD Percentage and  9-day signal line.

TRADING STOCKS IN THE BULLISH BEARS COMMUNITY

However, I still believe that building a divergence signal into the MACD Indicator Study allows the trader to focus on other factors. The Value Line is a measurement of moving averages on the price chart. The Avg Line and the Diff Swabs are internal indicators and ONLY measure the Value Line.

1. The MACD Oscillator is an excellent tool for both experienced and novice traders.
2. With our platform, you can combine the MACD indicator with several other indicators to make sure that you always place successful trades.
3. Bullish divergences tend to precede price reversals, potentially indicating a short-term bottom (from a downtrend to an uptrend).
4. This is seen on the Nasdaq 100 exchange traded fund (QQQQ) chart below with the two purple lines.
5. A positive histogram indicates that the MACD line is above the signal line, suggesting bullish momentum.

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Trendlines Explained

1. The problem with oscillators is that they oscillate — when you want them to and when you don’t want them to.
2. For example, if a security’s price makes a new high but MACD does not, then the two are diverging, with MACD indicating decreasing momentum in the security’s upward movement.
3. Traders may consider their trading goals, risk tolerance, and preferred trading style when selecting a timeframe.
4. It is important to note that by observing only the signal line crossing the main line, you can miss the resumption of the previous trend.
5. It helps in pinpointing market momentum and identifying potential entry and exit points, which are crucial for the fast-paced nature of day trading.
6. Furthermore, when the MACD histogram changes its slope, it reflects a change in momentum.

However, during a downtrend, if a bullish crossover occurs where the moving average line crosses the MACD line from below, you can exit your short position and place a long order. After identifying the confirmed current trend, you can look for ideal entry signals to trade along with the direction of the trend. The MACD crossover provides ideal entry signals when the currency pair price is above the moving average. The MACD line must also be above the how to read the macd signal or red line in order to place a successful entry order. Let’s now go through a trade using the MACD indicator as part of our crypto trading strategy.

Advantages and Disadvantages of MACD Indicator

By focusing on the points where the MACD line crosses the signal line and the zero line, traders can time their entries and exits with more precision. Many traders combine the MACD with other indicators, such as RSI or Bollinger Bands, to confirm the strength of the signal. Bullish divergences tend to precede price reversals, potentially indicating a short-term bottom (from a downtrend to an uptrend). Along with centerline and signal line crossovers, MACD charts may also provide insights through divergences between the MACD chart and the asset’s price action. It is almost forty years old, and the algorithm hasn’t changed during all that time. Even if you do not have it for some reason, you can always find it on the Internet, with a wide variety of versions.

Read on to learn about the MACD and some of the MACD strategies used by traders. In contrast, when a stock price is rising but the MACD is falling, then the current uptrend could be coming to an end, with a bearish retrace in the offing. Confirmation should be sought by trend-following indicators, such as the Directional Movement Index (DMI) system and its key component, the Average Directional Index (ADX). The ADX is designed to indicate whether a trend is in place, with a reading above 25 indicating a trend is in place (in either direction) and a reading below 20 suggesting no trend is in place. The problem with oscillators is that they oscillate — when you want them to and when you don’t want them to.

This approach allows for the separation of false fluctuations and reduces the reaction to short-term volatility increases. Partially, it is because of the smoothing that it becomes possible to apply it on small periods. The entire algorithm can be called quite simple, but it does not affect its efficiency. On the contrary, the MACD indicator works better than many much more complex oscillators. When looking at a MACD chart you’ll see a trendline following the relationship between a security price’s two moving averages.

Advanced MACD indicator usage: hidden MACD divergences

The zero-cross strategy could be used again to take a long position when the MACD crosses the zero line from below. At the point circled in our image, prices have been rising and momentum is up. For instance, divergence can indicate a period where the price makes successively lower highs, but the MACD histogram shows a succession of higher lows. In this case, the highs are moving lower, and price momentum is slowing, foreshadowing a decline that eventually follows. If prices change rapidly, the histogram bars grow longer as the speed of the price movement—its momentum—accelerates and shrinks as price movement decelerates. The MACD histogram is a visual representation of the difference between the MACD and its nine-day EMA—not highs and lows.

From there, you’ll be able to load the newly saved template into all of the additional tools on the platform including the Strategy Tester, Multi-Factor Alerts, Trading Bots, and Smart Checklist. Whereas RSI is bounded between 0 and 100, the MACD is unbounded, making it more useful in trending markets than for identifying overbought and oversold conditions. Divergence simply means an indicator and price chart are moving in different directions. MACD buy signals happen when the MACD crosses from below to above the signal line.

The way to do this is by using the concepts of divergence and convergence. The MACD is said to be convergent with price action if both prices and the MACD are moving in the same direction. In other words, if prices are making higher highs (in an uptrend) and the MACD makes corresponding higher highs, then we have convergence. Convergence of the MACD with price action confirms the strength, direction, and momentum of a trend. If the MACD moves in the opposite direction, making lower highs as price is making higher highs, then we have negative divergence. Divergence with price action indicates the potential weakening or possible reversal of a trend.

Keen to give crypto trading a try with this newfound trading knowledge? Alternatively, you can also read up on our guides to the best indicators for crypto trading to further expand on your available crypto trading knowledge. Since the 12-period EMA is lower than the 26-period EMA, this hints that recent prices are generally lower than prices in the past few weeks. As the 12-period EMA is higher than the 26-period EMA, this indicates that recent prices are generally higher than prices in the past few weeks.