The moving average (MA) convergence divergence is often preferred for its understandability and potentiality for providing robust trading signals. Visually the indicator looks like a turbulent magic carpet; that exact feel may come with the strong market movements.
However, the cryptocurrency markets involve extreme volatility. The MACD is a trend-following indicator. It provides signals regardless of short-term price momentum in a similar direction to long-term price momentum.
In this article, we will deep dive into the moving average convergence divergence. It is an indicator providing plenty of additional insight while monitoring price movements. We’ll be bringing out how the indicator may help in terms of making the right choices.
What is MACD?
It is a trading tool to define the crypto price direction using the correlation between two MA lines. The core idea of this tool is to find the extreme bought or sold level from where the reversal may happen. On the other hand, the histogram represents the relationship between MACD and price to find the upcoming price direction.
How to trade using MACD indicator in crypto trading strategy?
Numerous traders utilize the tool in different methods. Besides, some use it as a combination with other indicators. Yet crossover and divergence are the most utilized and best-suited trading strategies.
Crossover
The MACD line and signal line can be exploited in a similar method to a stochastic oscillator, along with the crossover within the two lines that shows buy and sell signals. However, a buy signal is shown in the short-term, and a more reflexive line means the line in here intersects over the slower line, which is the signal line. This situation is seen with most of the crossover methods. On the contrary, it depicts a bearish sell signal if the MACD line intersects under the signal line.
Divergence
It is the best way for the histogram to be used. Finding the chart points is among the most usual setups. The chart points of the price make a new swing high or low. Besides, the histogram does not depict a divergence in-between price and momentum. It is contentious to use the divergence signal as an anticipation tool.
There are some available dissimilarities between the appearance and the accuracy of divergence since its previous data will only incorporate successful divergence signals. A graphical observation of previous chart data may not disclose the unsuccessful divergences because it no longer pops up as a divergence.
A short-term trading strategy
The MACD indicator provides high accuracy-based trades with 60%-70% winning ratios. In this short-term crypto trading strategy, we will use the indicator to identify the short-term reversal of the market. This short-term crypto trading method works on every time frame, but M5 and the M15 time frames will be the best for this trading.
Bullish trade scenario
First, you have to add the indicator on the chart with the default setting of 12, 26, and 9. Then look for the MACD lines residing far below the 0.00 level and having a bullish crossover.
Entry
Open a buy trade when the price had an M15 bullish candle close after having a bullish crossover on the indicator.
Stop loss
Place the stop loss order below the last swing level with at least a 5-10 pips buffer.
Take profit
Take the profit by calculating at least a 1:3 risk/reward ratio. Or else, you can close the trade when the MACD lines have a bearish crossover above the 0.00 level.
Bearish trade scenario
First, you have to add the indicator on the chart with the default setting of 12, 26, and 9. Then look for the MACD lines residing far above the 0.00 level and having a bearish crossover.
Entry
Open a sell trade when the price had an M15 bearish candle close after having a bearish crossover on the indicator.
Stop loss
Place the stop-loss order above the last swing level with at least a 5-10 pips buffer.
Take profit
Take the profit by calculating at least a 1:3 risk/reward ratio. Or else, you can close the trade when the MACD lines have a bullish crossover below the 0.00 level.
A long-term trading strategy
The long-term crypto trading strategy has developed based on the divergence. In this crypto trading strategy, we will search for a divergence to buy and sell the market. Moreover, this strategy will apply to the D1 timeframe.
Bullish trade scenario
First, you have to add the indicator to the chart. Then look for the MACD histogram to create a bullish divergence, and the price had a daily bullish candle close.
Entry
Open a buy trade when the price had a daily bullish candle close after creating a bullish divergence.
Stop loss
Place the stop loss order below the daily bullish candle with at least a 10-15 pips buffer.
Take profit
Set the take profit order by targeting the next resistance level. Or else, you can take the profit by calculating at least a 1:3 risk/reward ratio.
Bearish trade scenario
First, you must add the indicator to the chart. Then look for the MACD histogram to create a bearish divergence, and the price had a daily bearish candle close.
Entry
Open a sell trade when the price had a daily bearish candle close after creating a bearish divergence.
Stop loss
Place the stop-loss order above the daily bearish candle with at least a 10-15 pips buffer.
Take profit
Set the take profit order by targeting the next support level. Or else, you can take the profit by calculating at least a 1:3 risk/reward ratio.
Pros & cons
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Final thoughts
To conclude, the MA convergence divergence is a great trading indicator. Since it displays buy and sell signals merely by two crossing lines hence even though the newest traders may use it effortlessly. Regardless of whether you’re a novice or a master, it may be a successful indicator for crypto trading strategy.
