The basic concept of trading is quite simple, traders buy an asset at a lower price with the expectations of the price going up; and they sell the asset at a higher price when the price starts to drop. At the core, the mechanisms of trading may seem quite simple; however, you still need to establish a solid grasp on the fundamentals of trading to succeed at it.
Traders form different theories, workings, and strategies that allow them to creatively generate consistent profits from market movements and trends. One essential tool are trading indicators, especially crypto trading indicators when trading cryptocurrencies.
Crypto trading indicators are mathematical calculations based on sophisticated statistical models that allow traders to forecast market conditions, asset prices, volumes, and other essential metrics that enable traders to gain capital.
These indicators enable traders with valuable insight and are a foundational aspect of performing technical analysis and forecasting the direction of trends and various other behaviors within the crypto market so traders can gain profit.
In this article, we’ll be discussing how traders use one of these indicators on various forms of altcoins in Bitcoins to produce consistent profits.
MACD – Crypto trading
Moving average convergence divergence, abbreviated as MACD, is a fundamental indicator that is utilized to forecast new bearings, directions, and trends the market will develop. This indicator is often implemented by traders to distinguish bearish or bullish direction in accordance with prior trends.
Simply put, MACD is an indicator that is a drive sign reflective of the trends occurring in the market. It bridges two shifting averages of an asset’s price; in this case cryptocurrencies to distinguish bearish or bullish directions of a specific asset.
The MACD is a popular and commonly used indicator in cryptocurrency trading. It is often prioritized for its simplicity and effectiveness to deliver accurate forecasts. The MACD indicator has four crucial aspects
- The MACD Line
The MACD line is worked out by a procedure which involves comparing a 26-EMA and a 12-EMA. EMAs are a price-chart analysis tool that mimics the most recent price of an asset. It’s a weighted moving average indicator that highlights the latest price of an asset.
- The Signal Line
The signal line is essentially a 9-EMA that is compared with the MACD line to monitor instances such as convergence, divergence, and crossing of the lines. Trading signals are often based on these signals.
- The Zero Line
The Zero line, as the name suggests is an instance where the MACD will be zero.
- The Histogram
The Histogram identifies or shows the interval of the MACD line from the signal line, or in other words the distance of those lines. This component allows traders to forecast essential metrics based on the positive or negative nature of the Histogram.
Using the MACD
MACD is widely used for generating trading signals in cryptocurrency trading. Some of the more common instances of an MACD generating trading signals is when two oscillating components of the MACD crossover.
Traders can easily predict if the trend is bullish or bearish by determining the position of the MACD line from the signal line. Interestingly, when the MACD line moves over the signal line, the trend is Bullish, additionally, when the MACD line moves under the signal line the trend is Bearish.
Moreover, the movement of the MACD line in correspondence with the signal line allows traders to gain valuable insight. The rise of the MACD line with the signal line often indicates positive momentum; however, the dip of the MACD line with the signal line depicts negative momentum.
MACD can also be used to find areas of divergence, allowing traders to forecast accurate trading signals. Often, a Bullish divergence occurs when a price projects a high low and the MACD illustrates a lower low. Additionally, Bullish divergence also occurs when a price projects relatively lower lows and the MACD illustrates a higher low.
Contrarily, a Bearish divergence occurs when a price projects a higher high and the MACD illustrates a lower high. Additionally Bearish divergence also occurs when a price projects a lower high and the MACD illustrates a higher high.
MACD is a powerful yet simple tool that has allowed millions of traders to produce successful trading signals and illustrates the moment of an asset’s price movement. Utilizing the MACD has allowed traders to be cautious of their decisions and verify their potential ideas.