Moving Average Convergence Divergence – How to Use MACD in Crypto Trading?

Moving Average Convergence Divergence is a momentum indicator used to determine asset trends. The oscillator has two lines – a signal line and a MACD line. A bullish trend signal emerges whenever the MACD line moves beyond the signal line.

The MACD line comes from subtracting the 26-period Exponential Moving Average from the 12-period Exponential Moving Average (EMA). Meanwhile, the signal line is a 9-period Exponential Moving Average. 

While most technical oscillators only offer a single data about historical price actions and cryptocurrency volatility, the MACD is a two-in-one indicator that measures trend strength and direction. Let’s evaluate the Moving Average Convergence Divergence and how crypto traders can use the signal to identify sell and buy opportunities. 

Explaining MACD Indicator 

MACD indicator allows users to: 

  • Measure the change in crypto prices – speed of trends and their momentum. The momentum readings are essential for retail traders to measure the weakness or strength of a cryptocurrency trend. 
  • Evaluate the trend direction (bearish or bullish) and forecast prices’ next move based on the connection between the two MAs. 

The MACD appears like an indicator with two MAs on a price chart. However, unlike common oscillators (RSI and Stochastic), the Moving Average Convergence Divergence doesn’t have specified boundaries. A MACD histogram completes the oscillator as it overlays the two MAs. 

You may have to understand MAs to learn everything about MACD. In the crypto price action context, Moving Average represents a graph line that displays the average figure of data accumulated over a specific period. 

Investors categorize Moving Averages into – SMAs (Simple Moving Averages) that process input data equally and EMAs (Exponential Moving Averages) that show more weight to the latest data. MACD depends on the latter since it offers more relevant stats for making buying and selling decisions. 

MACD remains lucrative due to its simplicity, as the readings are easy to digest – even for newbies. Nonetheless, it is noteworthy that you should never decide to buy or sell any token by depending on one indicator. Moving Average Convergence Divergence can be a massive addition to trading signals like the Relative Strength Index and Stochastic. 

How MACD Works 

You may need to understand MACD’s particulars on a graph to utilize the indicator in your crypto trading activities. It has three primary components: 

The MACD Line – short-term EMA (the fastest MA)

The MACD Line represents the difference between the 26-day EMA and the 12-day Exponential Moving Average. It is in the color blue. You can always identify the MACD Line by subtracting the 26d EMA from the 12d EMA. 

The Single Line – long-term EMA (the slowest MA)

Usually red, the Single Line is a 9-day line that shows price action movements. The Single Line is the 9-day Exponential Moving Average of the MACD Line. 

MACD Histogram – wavers beyond and beneath a zero line, helping to identify bearish and bullish readings. The histogram is the difference between the initial two elements – subtracting a single line from the MACD line. The histogram is negative when MACD is beneath the single line, and vice versa. 

Meanwhile, one should evaluate the following to ensure the correct signal reading.

  • A positive MACD and increasing histogram signal surging momentum. That means the price can grow – a buy signal.
  • Contrarily, a decreasing MACD amid plunging histogram value shows price dips – a sell signal.

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