Crypto markets with Bitcoin specifically, have been known as incredible markets for trend following strategies. In this article, we are going to be talking about an extremely popular trend following tool, the Moving Average Convergence Divergence , otherwise referred to as the MACD Indicator. Convergence and Divergence refers to when the 12 and 26 EMAs are moving closer together or further apart. The Signal line , or 9 period moving average of this value, gives us buy or sell signals depending on whether it is crossing above or below the MACD.
At the bottom of the chart you can see the MACD indicator. This value is then plotted to give us a representation of how far the moving averages are spaced apart. The idea being that a trend that is picking up in momentum will result in the moving averages diverging from each other, and the opposite for a trend that is losing steam. The Golden line is the signal line, which gives us an idea of what the trend has been for the MACD values.
As you can also see, there is a histogram plotted on the chart as well. The convergence and divergence between the MACD and Signal line are clearly seen in the histogram and can be used to help crypto traders identify bullish or bearish momentum. For one thing, the MACD will spend much of its time favoring the values above the 0-line during bullish market environments and below during bearish market environments.
This is like the concept of the 50 line for the RSI. So, at first glance, the MACD can be used to get a higher up view as to what the general market direction is. The other way we can use the MACD is as a simple trend-following tool to identify good entries and exits for higher timeframe trends. The reason I say higher timeframe is because we normally see more false signals on the lower timeframe as the result of choppier behavior.
This is also why the MACD is not as effective in ranging environments. If we are looking at the daily crypto chart and see that after putting in some type of bottoming structure, that price is now moving upward and the signal line has crossed from under the MACD line to above, and both are trading above the 0-line, then this may be a good signal to long that asset. On the other hand, if price has been in a sustained uptrend , has formed some type of topping pattern, and now the Signal line is consistently maintaining position below the MACD line; it may be time to sell the position or consider shorting the market.
The simple crossover with substantiating evidence of a topping pattern, are more often than not, good to act on alone without crossing the 0-line , because market reversals to the downside happen rather quickly and do not often allow for smoother entry. If we have a trend that has continued upward printing higher highs in price action but lower highs in the MACD, or lower lows in the MACD but higher lows in price action; this may be a case for a divergence in momentum.
The result was a hard fork that created Bitcoin Cash in , a new cryptocurrency considered by supporters to be the legitimate continuation of the Bitcoin project as peer-to-peer electronic cash. All Bitcoin holders at the time of the fork block , automatically became owners of Bitcoin Cash. Therefore, trade with caution. The RSI is a line graph that moves between two extremes and has a reading from 0 to Traditional usage of the RSI is that:. The result of that calculation is the MACD line. Potential buy signals occur when the MACD moves above zero, and potential sell signals when it crosses below zero.
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