The MACD or the Movement Average Convergence Divergence is an indicator that’s primarily used to identify turning points in the price action. These turning points happen when the two lines in the MACD indicator cross into one another, thus indicating a transition from a bullish performance to a bearish performance, and vice versa.
What Does MACD in Crypto Mean?
The MACD can be utilized to identify turning points in the value of different cryptocurrencies. For example, if XRP (Ripple) is trending upwards and you are waiting for the best time to enter a buy position then the MACD indicator will help you do that.
As you know, cryptocurrency prices oscillate heavily both on uptrends as well as on downtrends. The MACD will let you know when to buy or sell in either of these cases by highlighting the dips and peaks in the price action.
So if you’re interested in using the MACD indicator to trade crypto, pay attention to its strengths and weaknesses, and don’t be afraid to use other indicators to confirm the information that it gives you.
Parts of the MACD
When a person looks at a MACD indicator, he or she will notice that it is composed of two lines that seem to intersect and split off from one another. Below these lines are a series of red and green waves that flow up and down in correspondence with the two lines.
Here’s what these different things mean.
– The MACD Line is one of the two lines in a MACD indicator. It is the difference between the 12 EMA (Exponential-Moving-Average) and the 26 EMA, which indicates the average price between these two averages.
– The Signal-Line is the second line in a MACD indicator, and it represents the average price action of the crypto in the last 9 days. It also smoothens the MACD line, which happens to be quite responsive to price actions
– The Histogram are the red and green waves you see below the two lines, and they correspond to the distance between these two lines.
One reminder though. The 12 day, 26 day and 9 day settings mentioned above are the defaults for the MACD indicator, and may be changed at any time if you so choose.
How Do You Use A MACD On Cryptos?
Let’s say that you want to buy a bunch of ADA (Cardano) Coins, but you want to make sure that the you only buy near the bottom. The MACD indicator, even with default settings, will allow you to identify the best point at which to buy this cryptocurrency.
Before you start using the MACD indicator, you will need to look at Cardano’s long term trend. If it’s bullish, wait for the MACD and Signal lines to move downwards then put your buy position after they converge at the bottom.
The same is true for the Histogram. Wait for it to become flat, as that indicates convergence between the two lines in the MACD. When the two lines start diverging again, it means that the price action will continue its upward trajectory, at which point, you will need to wait for them to start converging at the top. When the MACD and Signal lines start to converge again, and the Histogram slowly becomes flatter, that means that the price action is nearing the peak, at which point it’s time to sell your ADA.
As with most indicators, it’s best to experiment with the MACD indicator on a virtual trading account, as that will allow you to get used to its strengths and weaknesses. Once you’ve figured out how it works, you can start incorporating it into your crypto trading strategy.
Cryptolume has a MACD scanner for crypto that checks where there are currently MACD crossovers taking place, across all cryptocurrencies, across all the major exchanges such as Binance, Bittrex and Huobi. As you can imagine this helps many people to save time in their trading strategies.
Disclaimer: This article is not trading advice, Cryptolume is not a financial advisor. Any trades you make based upon this information will be at your own risk and Cryptolume will not take responsibility for any negligent trades.