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What is the MACD in crypto trading?

The cryptocurrency rialto over the past five years has become a full-fledged part of the global financial system. Digital assets are used for risk hedging, staking, farming, and long-term storage. But on the other hand, the crypto market is in many ways similar to the classic stock market.

Spot and futures trading in the digital currencies rialto is as popular as in the stock market. The only difference is that there are more chances to make money in the digital asset market. This is due to the high level of crypto assets volatility, dynamic external news background, and a large number of inexperienced traders who want to find out how to spot the next big coin.

To trade successfully under these conditions, it is vital to take into account all the components of the price movement to save capital. To do this, for over a hundred years, traders have developed a large number of technical indicators that allow you to predict a price reversal, the emergence of a trend, or an impulse price movement. Today we will try to completely disassemble the MACD metric into its components. Let’s answer the question: what is macd in the crypto rialto and how to read the macd indicator during trading.

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Trading/ photo: infolitglobal

Let’s start with the general concept of the MACD crypto. But before that, you need to understand the concept of moving averages, which were also used in trading in 19 century in the UK when there was no crypto and Bitcoin. In the 21st century, the legality of bitcoin in the UK is at a sufficient level to use moving averages and macd when trading it. Therefore, it will not be superfluous to dwell on both moving averages and macd.

There are only two types of moving average metrics. The first is called a simple moving average, which covers a range of time and gives the trader an idea of ​​the fair price of some digital assets for some time. The second type with a complicated name is called exponential moving average or EMA. This metric is much more informative and suggests that shortly the price of a particular digital asset will reverse.

Now back to the MACD. Let’s find out how macd works. We spent so much time on the EMA and SMA because the MACD is a metric that shows when moving averages cross and diverge. The analytical engine uses the information of two averages to understand the exact time of the price of a digital coin. The metric can be used more widely and find the next trends in the market. But for this, you need to use additional parameters. By itself, macd is not the alone indicator, it needs helpers. Experienced traders use macd signals to determine where to buy and where sell a digital coin.

The indicator is very popular, even though it is quite young and was developed in the 70s. The essence of the new formula was, to sum up, advances in technical analysis to create a new metric. The work resulted in a new information technology function in the hands of investors called macd.

This is not the most independent metric, but it gives a broad understanding of the fairness of the current price movement and is also able to predict the onset or end of a trend. In the macd system, everything is built on three components that allow you to find out the current state of the asset in the rialto:

  1. MACD line. The most important and informationally important component of the metric, which allows you to get information and the expediency of buying or selling a crypto asset, takes into account the current market situation.
  2. Signal line. This is an important part of the indicator, which, together with other metrics, makes it possible to obtain information about an upcoming trend reversal or a decision to buy/sell an asset.

Bar graph. A visual display of investors’ sentiment, backed up by the other two components of the macd metric. Allows you to understand the potential of the current trend and prospects when it changes to the opposite.

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Components of MACD/ photo: TradingView

MACD Line

The macd line provides users with a huge range of technical settings, which allows them to operate with a large number of timeframes. This line allows traders to find out the mood in the rialto, the prerequisites for the end or the start of a certain trend, as well as set the current investors’ sentiment.

Signal Line

We will calculate the signal line based on the 9-day EMA. When the MACD line crosses with the signal line, it shows that the trend will change on the opposite. An even more obvious signal is when the intersection occurs at the upper or lower boundary of the metric’s range of motion.

MACD visual graphic

The visual component of the indicator, which forms something like a histogram, allows you to determine the current investor’s sentiment. The chart is divided into red and green zones, and when the line crosses one of these zones, it becomes clear whether the uptrend or downtrend will be aggravated. In addition, a visually understandable figure facilitates the work of investors and gives them an understanding of what is happening at a native level.

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MACD technical indicator/ photo: Amarkets

What can you find out with MACD ?

This metric should not be used without other metrics for trading. MACD works well in harmony with other technical algorithms. Despite this, several important signals can be obtained exclusively from macd. All of them are connected with the intersection of the centeral line.

Here everything works on an instinctive level and is connected with the intersection of the central axis by the line. When looking for signals, you need to take into account an important component, which is the location of the indicator line. If it is in the range from 0 to -100, then most likely the market is not ready to buy and continues to sell. This can be taken as a signal to sell. However, to be completely sure, this signal should be supplemented with information from the RSI index and the stochastic oscillator, which perfectly determine the level of sales/purchases.

The rule also works the other way around. When we see how the central axis crosses from the backup, this indicates a potential uptrend and an increase in buying. Accordingly, at this stage, investors can buy assets. But in this case, it is very important to back up the MACD data and other metrics. These are the characteristics of cryptocurrencies. They can drastically change the price and the way of moving, which puts inexperienced raiders using macd at a dead end.

Do not forget that all intersections that occur during trading must be compared with other signals. Otherwise, they are absolutely useless and give a false impression of the situation. As a safety net, you can find out where the intersections are on the chart. For example, if there is an upward movement of the metric (you need to buy), but the line is in the range from 0 to -100, then there is a risk of losing capital due to buying. In such a situation, most likely the market has no desire to go up. If there are sell signals, but the macd line is in the range from 0 to 100, then this is most likely a temporary situation and the price will go up soon.

In addition, macd can help traders find out the potential of a particular price movement using divergences. For example, the price goes up, but the indicator is below zero. What does it say? This indicates a weakness in the upward momentum, a likely price decline, and is called a bearish divergence. Here it is also worth to insure information from the RSI and the stochastic oscillator. The same goes for bullish divergence. If conditional BTC quotes are falling, but macd is above zero, then it is probably worth waiting for a reversal upward movement.

Summing up, it is important to note that the MACD gives a broad picture of what is happening with crypto-asset within the framework of fundamental analysis. Using the metric, you can find the imminent trend reversal or assess the power of the current impulse. But for the final decision, one MACD is not enough. This indicator pairs well with the RSI and Stochastic Oscillator, which complete the picture of buying and selling activity. Making a decision based solely on the MACD can result in the loss of a trader’s capital.