Hello everyone in this great community, it is a pleasure to write and share my thoughts once again here in this community. Today I will tackle the topic "Moving Average Convergence/Divergence Indicator (MACD)" and look at the uses and how to use it to determine and predict future crypto price trends. Without much ado, let us dive into the topic.
The Moving Average Convergence/Divergence (MACD) indicator is a technical analysis tool that helps traders identify momentum prices, and also determine the price trends of crypto assets. It involves the use of two Exponential Moving Averages (EMAs) that is the 12-period EMA and the 26-period EMA. With the aid of these two EMAs, the MACD line is calculated or determined by subtracting the 26-period EMA from the 12-period EMA. There is also a signal line that supports the MACD line to help traders read crypto charts and predict the future price of assets.
Generally, when the MACD line crosses below the signal line, it is an indication of a sell or short order. Similarly, when the MACD line crosses above the signal line, it is an indication of a buy or long order in the crypto market. There are different ways of interpreting MACD indicators and I would indicate them here with cryptographic charts included as well.
Generally, the default setting for the time frame (period) in using the MACD indicator is 9/12/29 days and it is used best with daily periods. MACD indicator also helps traders to determine overbought and oversold in the market. It also signals traders with either bullish or bearish divergence in the price of an asset. The MACD indicator helps traders or investors to determine when to enter and leave the crypto market. It signals potential price reversals to investors and traders as well. Mathematically, MACD Calculation can be written as;
MACD = 12-Period EMA - 26-Period EMA
Bullish Trend: In using the MACD indicator to identify bullish trends, it occurs when the MACD line crosses above the Signal line, then it is an indication of a bullish trend. From the chart shown below, I have indicated how the MACD indicator is used in determining a bullish trend in the price of a crypto asset.
Bearish Trend: In using the MACD indicator to identify bearish trends, it occurs when the MACD line crosses below the Signal line, then it is an indication of a bearish trend. From the chart shown below, I have indicated how the MACD indicator is used in determining a bearish trend in the price of a crypto asset.
Divergence: It occurs when the MACD forms or indicates highs or lows that don't correspond with the crypto chart price of the asset. It can either be a bullish divergence or a bearish divergence and I would be indicating with crypto charts as examples here in this post the difference.
Bullish Divergence: It occurs when the MACD indicator indicates two rising lows which corresponds with two falling lows on the price chart of the asset. From the chart below, I would indicate to you all what I meant by that statement above.
Bearish Divergence: It occurs when the MACD indicator indicates two falling highs which corresponds with two rising highs on the price chart of the asset. From the chart below, I would indicate to you all what I meant by that statement above.
These are the basic ways the MACD indicator can be used to determine the price movements of crypto assets. Note that, MACD shouldn't be 100% trusted and the best way is to use it with other indicators such as RSI, which I will talk about in my next article. I hope that you guys learned something from my post, you can leave your feedback about what you think.
Thank you all for your time and attention, I am looking forward to seeing you all in my subsequent posts.
All unsoured images were taken from tradingview.com
