The Moving Average Convergence Divergence (MACD) has been used in traditional finance markets for close to fifty years. Now, cryptocurrency traders are using it to spot trend changes and grow their profits. As cryptocurrency is a very volatile market, the momentum indicator can be especially useful, helping traders trade smarter as they gain an insight into short-term market moves.
Key insights
- MACD is a popular technical indicator that cryptocurrency traders use to identify the momentum of a cryptocurrency.
- Key trading signals that traders look out for are the signal line crossover, zero line crossover, and bullish and bearish divergence.
- Traders use MACD alongside other trading indicators to help them trade smarter.
What is the Moving Average Convergence Divergence (MACD) indicator?
Moving Average Convergence Divergence (MACD) is a technical indicator popular among crypto traders. It reveals the current momentum of a cryptocurrency, including its direction and strength.
There are two lines to pay attention to with the MACD indicator: the MACD line and the signal line. When the MACD crosses above the signal line, it indicates a bullish trend. Conversely, when the MACD crosses below the signal line, it shows a bearish trend. Along with the MACD and signal lines, a histogram is included in the indicator.
The histogram is simply the difference between the MACD and signal line. It’s such a useful addition to the indicator as it quickly shows you the strength and direction of the trend. When MACD is bullish, the histogram will be above the zero line, and below it when the trend is bearish. And the more the bars are increasing or decreasing, the stronger the trend.
How do crypto traders use the MACD indicator?
1. Signal line crossover
Many traders consider it a buy signal when the MACD line crosses above the signal line. If they’re watching a cryptocurrency they want to buy, they may wait for this signal to make their purchase. Conversely, when the MACD line crosses below the signal line, many traders take this as a sell signal and it can be the catalyst for them to exit their positions.
2. Zero line crossover
When the MACD moves above the zero line, this is seen as a bullish signal by traders and a bearish signal when it crosses below the zero line. Specifically, a bullish cross above the zero line means that the MACD’s shorter-term EMA is greater than the longer-term EMA.
3. Bullish and bearish divergence
When a cryptocurrency’s price is moving in one direction, but the MACD line is moving in another, it’s known as a divergence. It can signal that a trend is set to reverse or prices will rise or fall. You can identify divergence on the chart by looking at the trend of the price compared to the MACD line.
A bullish divergence can suggest a downward trend is slowing and prices may soon begin rising. Many traders take it as a buy signal. Specifically, this happens when a price makes a lower low, and yet, the MACD makes a higher low.
In contrast, a bearish divergence can indicate that buy pressure is swindling and a price reversal may be coming. The technical signal occurs when a coin’s price makes a higher high, but the MACD makes a lower higher. Traders take this as a sign of weakness in the market and can look to take profits.
Watch out for false MACD signals
MACD is undoubtedly one of the most useful technical indicators in crypto. It packs a lot of information into a simple tool. However, like all technical indicators, MACD relies on historical data and cannot predict future market moves with certainty. Always make sure you manage your risks and don’t overly rely on a single technical indicator. Luckily, there’s a lot more information available that can help you trade smarter.
Want to learn more?
Visit our learning hub to grow your knowledge and trade smarter. Many traders beginning their crypto journey dive into the Relative Strength Index (RSI), on-chain analysis, and an overview of the three main types of cryptocurrency analysis. Or if you’re ready to start trading on Cointree, you can create your account now.
Disclaimer: Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.
FAQs
Calculation. An approximated MACD can be calculated by subtracting the value of a 26 period Exponential Moving Average (EMA) from a 12 period EMA. The shorter EMA is constantly converging toward, and diverging away from, the longer EMA. This causes MACD to oscillate around the zero level.
How to use moving average convergence divergence MACD? ›
Moving average convergence/divergence (MACD) is a technical indicator to help investors identify entry points for buying or selling. The MACD line is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.
How to use MACD indicator in crypto? ›
There are two lines to pay attention to with the MACD indicator: the MACD line and the signal line. When the MACD crosses above the signal line, it indicates a bullish trend. Conversely, when the MACD crosses below the signal line, it shows a bearish trend.
How do you combine MACD and moving average? ›
To build MACD, it is necessary to subtract the long moving average from the short one. The signal line is calculated not from the price but from the MACD line. Its value, as a rule, is 9 periods. Layout of the indicator could be set in the form of a bar chart and dashed line or in the form of a solid and dashed line.
What is the best moving average to use with MACD? ›
MACD + МА strategy
The most effective and simple one would be МА. The buy and sell signals will then be as follows: If the price chart crosses the moving average downward and the histogram intersects with its average in the same direction, the sell order will be open.
What is the best MACD setting for divergence? ›
The standard MACD settings (12, 26, 9) are time-tested and widely used, offering a good balance for various market conditions. They tend to be reliable for capturing broader market trends.
What is the best way to use MACD? ›
A common strategy is to buy when the MACD line crosses above the signal line, as this indicates bullish momentum. Another strategy is to sell when it crosses below (which indicates bearish momentum). Forex traders also often look for divergences between the MACD and the price action to spot potential reversals.
What are the best settings for MACD crypto? ›
The MACD indicator uses the 12 and 26-period MA's standard. These settings are never changed and it is best to keep them this way. Remember, indicators also work better when most people are seeing the same signals. That's why it's advised to keep the bitcoin MACD crypto settings always at 12 and 26.
How to avoid MACD false signals? ›
Increasing the number of periods for the signal line will reduce the number of crossover signals, helping avoid false signals. However, trade signals will occur later than they would with a shorter signal line EMA. The indicator can be applied to any timeframe, but it's preferable to choose those from H1 and bigger.
What is the MACD secret strategy? ›
This is often seen as the slowest signal of the three, so you will typically see fewer signals, but also fewer false reversals. The strategy is to buy – or close a short position – when the MACD crosses above the zero line, and sell – or close a long position – when the MACD crosses below the zero line.
MACD + RSI + SMA
This combination uses one leading (RSI) and two lagging (MACD and SMA) indicators. The RSI shows the potential future price changes. The SMA is a trend-following indicator that lags. While the RSI shows potential reversal points, the SMA helps in confirming these signals.
What time frame is best for MACD? ›
Divergences between price chart and MACD can be more accurate. The position of the chart relative to the zero line and the crossing of moving averages over the zero mark can indicate trend strength. Best Settings: For H1 timeframes, optimal values are 12, 26, 9.
What 3 moving averages should I use? ›
Common Moving Average Periods
Traders and market analysts commonly use several periods in creating moving averages to plot their charts. For identifying significant, long-term support and resistance levels and overall price trends, the 50-day, 100-day, and 200-day moving averages are the most common.
What periods are best for MACD? ›
For daily charts, many traders find the default MACD settings (12, 26, 9) to be very effective. This timeframe captures the broader market trends and helps filter out market noise. Combine MACD with other indicators like RSI or Bollinger Bands when analyzing a 1-day chart for a more comprehensive market view.
What is the triple MACD strategy? ›
The MACD Triple Crossover Strategy
The MACD Triple Cross Strategy involves using three exponential moving averages (EMAs) to identify potential trading opportunities. It combines the Moving Average Convergence Divergence (MACD) indicator with two additional EMAs.
What is the difference between convergence and divergence in MACD? ›
Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movements.
How do you use RSI MACD? ›
Understanding MACD and RSI
The Relative Strength Index indicator is located at the bottom of the chart and represents a zero to a hundred scale with two lines drawn at the levels of 30 and 70. When the indicator graph crosses 70, the market is most likely overbought and when it crosses 30 — oversold.
What does 12 26 9 mean on MACD? ›
The 12 represents a moving average of the previous 12 bars. The 26 represents a moving average of the previous 26 bars. The 9 represents a moving average of the difference between the two moving averages above.
How do you spot divergence with MACD? ›
Here are some basic guidelines for doing so: Expect to see divergence on the MACD when the price movement slows (relative to prior price waves) or moves sideways. This isn't necessarily an indication of a reversal. If divergence is present, don't exit a current trade only because of the divergence.
