PATTERNS ARE TO BE DETECTED and to the extent that you become BOLD when detecting them, YOUR TRADING will change forever. And one of the tools that will help you in your work will be the one I bring you today: THE MACD. A momentum indicator that can be your best ally in decision making.
And you better know well what his strong point is. First you should know that this indicator serves to help you identify changes in the DIRECTION (where the market is heading), THE STRENGTH (if there is liquidity, if for example liquidity is entering and there is a greater volume of operations or not) AND THE DURATION OF A TREND (if it is just a hype, a hoax, or there is serious supply and demand). Secondly, from the outset you have to know that like any indicator it is not completely reliable so it will help you complement your analysis). At the end I leave you an important piece of information to configure your MACD.
Understanding the MACD:
The Moving Average Convergence/Divergence (MACD) indicator is a popular tool in technical analysis that helps us identify trends and turning points in the crypto market. It consists of two lines:
The MACD line is the difference between two exponential moving averages (EMAs assign a greater weight to more recent data, making them more sensitive to price changes),
The signal line in the MACD is the calculation of another 9-period exponential moving average. This line serves as a signal to position yourself to buy or sell when it crosses the MACD or also when it crosses the zero line (it is the midpoint between the bullish and bearish histogram).
When these two lines intersect, a potentially significant signal is generated.
2. Histogram crossover signal:
The MACD histogram is a visual representation of the difference between the two lines mentioned above. When the histogram crosses the zero line from bottom to top, it indicates a potential buy signal. On the other hand, when the histogram crosses the zero line from top to bottom, it indicates a potential sell signal. These crossovers can be considered extreme points that help us identify lucrative opportunities in the crypto market.
3. Divergence between the indicator and the price:
The divergence between MACD and price is another key aspect in our extreme points strategy. When the price reaches a new high but the MACD fails to reach a corresponding new high, it is considered a bearish divergence. Conversely, when the price makes a new low but the MACD fails to make a corresponding new low, it is considered a bullish divergence. These divergences can indicate a reversal of the current market trend and offer valuable opportunities to enter or exit a position.
4.MACD Settings:
The standard MACD setup is 12, 26, and 9, which means it uses a 12-period exponential moving average (EMA), a 26-period EMA, and a 9-period EMA for the signal. This standard setup can generate more frequent signals due to its greater sensitivity to changes in price. However, when the settings are adjusted to 28, 14 and 9 respectively, the sensitivity of the indicator is seen to decrease, which can result in less frequent but potentially stronger buy or sell signals. Keep an eye on the data.
CONCLUSION:
The MACD-focused extreme point strategy gives us a unique perspective to make the most of the crypto market. By paying attention to the histogram crossover signal and the divergence between the indicator and the price, we can identify lucrative opportunities and make informed decisions. You can combine this strategy with other indicators such as RSI, which can provide you with a more complete view of the market situation and improve the efficiency of your trading decisions.
Remember that no strategy is foolproof and we should always perform our own analysis and consider other factors before making investment decisions.
"Don't try to predict what the market will do. Focus on what you will do if the market does something unexpected." Jack Schwager
These are reading times.
