Moving Average Convergence Divergence (MACD)

Tag: xbt, bitcoin price, tech analysis, RSI, MACD, divergence, rapid rise, bullish and bearish signals

It is a trend-following momentum indicator that displays the relationship between two moving averages of a cryptocurrency’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period exponential moving average (EMA). The result of that calculation is the MACD line. A nine-day EMA of the MACD is called the “signal line,” which is plotted on top of the MACD line and is considered as a trigger for buy and sell signals. Traders may buy the cryptocurrency when the MACD crosses above its signal line and sell the cryptocurrency when the MACD crosses below the signal line. The MACD indicators can be interpreted in different ways, but the common methods are crossovers, divergences, and rapid rises/falls.

Histogram

MACD is usually displayed with a histogram which shows the distance between the MACD and its signal line. When the MACD is above the signal line, the histogram will be above the baseline of MACD, and vice versus. Traders usually use this histogram to identify when bullish or bearish momentum is high.

Crossovers

As shown on the following chart, when the MACD falls below the signal line, it is a bearish signal that indicating it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator generates a bullish signal, which means that the price of the cryptocurrency is likely to experience an upward. Some traders will wait for a confirmed cross above the signal line before entering the market to reduce the chances of being “faked out” or entering the market too early.

Divergence

When the MACD forms highs or lows that diverge from the corresponding highs and lows on the price, it is called a divergence. And when the MACD forms two rising lows that correspond with two falling lows on the price, a bullish divergence appears. This is a valid bullish signal when the long-term trend is still positive.

When the MACD forms two falling highs that correspond with two rising highs on the price, a bearish divergence has been formed. A bearish divergence that appears during a long-term bearish trend is considered confirmation that this trend is likely to continue.

Rapid Rises or Falls

When the MACD rises or falls rapidly, which means the shorter-term moving average pulls away from the longer-term moving average, it is a signal that the cryptocurrency is overbought or oversold and will soon return to normal levels. Traders will often combine this analysis with the relative strength index (RSI) or other technical indicators to verify overbought or oversold conditions.

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[…] and commonly used technical indicators include relative strength index(RSI), moving average convergence divergence(MACD), Bollinger bands, moving average(MA), and so on. We will briefly introduce the basic information […]

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