The MACD in my view - Cryptocurrency Exchange Platform Technology

In the crypto stock market, if you want to know the past trend of a coin or stock, you can look at the candlestick chart; to observe the current trend, you can check the intraday chart and short-cycle K-line on the order book. But actually, what investors care more about is the possible future trend of a coin or stock. At this point, looking at the MACD usually can provide some help, more or less.

The MACD (Moving Average Convergence/Divergence) is a widely valued trend-following technical indicator, so much so that some call it the “King of Indicators,” because it can be used to analyze the movement trend of coin or stock prices and also has relatively high reference value. Its full English name is Moving Average Convergence/Divergence, abbreviated as MACD.

The MACD indicator is presented as a graph with one axis and three lines.

The axis refers to the zero line (usually not specially marked, it is a horizontal line located in the middle of the chart, either solid or dashed), and the three lines are the DIF line (also called the fast line, with more active wave-like fluctuations), the DEA line (also called the slow line, with more gentle wave-like fluctuations), and the MACD histogram (short vertical bars, positive values above the zero line in red; negative values below the zero line in green).

Above the zero line is the bullish zone, indicating strong momentum when both the fast and slow lines are in this zone; below the zero line is the bearish zone, indicating weak momentum when both lines are in this zone. When the MACD green line shortens or the red line lengthens, it indicates the trend is shifting from weak to strong; when the red line shortens or the green line lengthens, it indicates the trend is shifting from strong to weak.

The fast line shows the speed and direction of recent short-term K-line changes, which can be understood as the current rate of increase or decrease and the movement direction of the coin or stock price; the slow line reflects the speed and direction over a slightly longer recent period, which can be understood as the average recent rate of change and the movement direction of the price. As a result, the relative position of the fast and slow lines vividly displays many internal changes in the K-line’s rise and fall.

When the fast line is above the slow line, it indicates that the current upward momentum is stronger than the recent average, or the current downward momentum is weaker than the recent average—this is a bullish sign; when the fast line is below the slow line, it indicates that the current downward momentum is stronger than the recent average, or the current upward momentum is weaker—this is a bearish sign.

When both the fast and slow lines are moving downward, regardless of whether they are in the bullish or bearish zone, it can be understood as a trend toward a bear market. Conversely, when both lines are moving upward, regardless of their zone, it indicates a trend toward a bull market. However, if the two lines cross the zero line sequentially from above or below, it only signals a change in strength, not a direct trading signal, because they are lagging indicators and will fall behind the market. Also, no one can predict how long they will continue in the current direction, how far they will go, or when they will turn back. Trading based on this can be very prone to errors.

MACD can be used to observe and judge the upward or downward trend of a coin or stock, and it can also be used to analyze the overall market trend. Recognizing this and making full use of it is very meaningful. The inertia of the overall market trend is large, with fewer false moves, so the effectiveness of MACD will be higher, and its judgment, warning, and guiding significance can be stronger.

Unless otherwise specified, when mentioning MACD, it generally refers to the MACD displayed on the daily K-line chart, i.e., the daily MACD. This is a cycle that is neither too long nor too short. If used to guide intraday trading, it reacts relatively slowly and cannot provide timely buy or sell signals. If used for medium- to long-term trading, it often appears too volatile and can be misleading. So, how should MACD be used to maximize its strengths and avoid its weaknesses?

The MACD on the 5-minute cycle or above is more suitable as a reference for intraday trading. The shorter the cycle, the more sensitive it is; the longer the cycle, the more stable. If you determine through other means that the current time is appropriate for buying or selling a particular coin or stock, then when the short-term MACD shows a genuine strengthening signal, confirm it with volume and price features, and consider buying; if it indicates weakness, confirm the timing with volume and price features, and consider selling.

The weekly MACD is more accurate for judging the medium- and long-term trend of a coin or stock, and is generally regarded as the preferred reference indicator for medium- and long-term investment. When it signals that the coin or stock price has bottomed out and will strengthen in the mid-term, you can consider buying based on the daily chart; when it signals that the price will weaken in the mid-term, you can consider selling based on the daily chart.

In this case, wouldn’t the daily MACD be too high or too low, and thus useless? On the contrary, as long as the cycle is not specified, it is the most useful. Whether using short-cycle MACD or long-cycle MACD, it is necessary to consider the coin or stock’s performance on the daily cycle. For investors, the most needed, most valued, and most used is to analyze the recent trend and short-term trend of the coin or stock. The daily MACD, being neither too long nor too short, is perfect for such occasions. When the analysis confirms that the timing is right, specific actions like buying or selling should be considered, and only then can intraday trading be performed, allowing the short-cycle MACD to shine. For medium- and long-term investment, it is also necessary to frequently assess the market situation and make timely entries and exits, to avoid missing rare opportunities that turn unrealized gains into unrealized losses. During these times, referencing the daily MACD makes sense—why leave it idle?

Using MACD to guide trading generally requires paying attention to the following situations:

1. Top divergence and bottom divergence

When both the fast and slow lines are in the bullish zone, and the K-line reaches a new high, if the MACD red line does not reach a new high accordingly, the high point is lower than the previous one, called “top divergence,” also known as “bear divergence”; if the coin or stock price consolidates or continues to rise at high levels, but the fast line cannot go higher or even declines, or if the fast line remains below the slow line for a long time, these are also top divergence phenomena; if the fast line does not decline in the bullish zone, but the MACD histogram shortens, this is another form of top divergence.

Top divergence usually indicates that a decline may occur soon, sometimes as a precursor to a trend reversal.

When both lines are in the bearish zone, and the K-line reaches a new low, if the MACD green line does not reach a new low accordingly, and the low point is lower than the previous one, it is called “bottom divergence,” also known as “bull divergence”; if the coin or stock price consolidates or continues to fall at low levels, but the fast line does not go lower or even rises, or if the fast line remains above the slow line for a long time, these are also bottom divergence phenomena; if the fast line does not rise in the bearish zone, but the MACD histogram shortens, this is another form of bottom divergence.

Bottom divergence usually indicates that an upward move may occur soon. At this point, observing volume can be helpful; if volume cooperates, it is likely a sign of an impending trend reversal.

Top and bottom divergences often appear after the market has been in a bullish or bearish trend for a while, indicating that although the main trend is still relatively strong, it is dissipating, and the bullish or bearish momentum is accelerating its transformation. In such cases, the trend may reach a peak and then decline or bottom out and then rise, with the K-line and MACD being out of sync, forming divergence.

Shorter cycles also frequently show divergence phenomena, which can serve as a reference for catching buy or sell signals during intraday trading. When a divergence appears on a larger cycle, and the divergence signals across different cycles are consistent, it often can accurately indicate the start of a trend reversal.

The reason why divergence theory is widely regarded is because it can signal trend reversals in advance, which is highly significant. Divergence visually reveals abnormal patterns behind K-line movements, hinting at an impending reversal, which is the value of the MACD indicator.

Divergence is a surface phenomenon, driven by the ebb and flow of bullish and bearish forces. The fundamental factors influencing this are the accumulated price changes and the synchronized volume. Therefore, volume changes often serve as a thermometer for the underlying trend behind divergence phenomena. The larger the cumulative rise during an upward phase, the more volume is released, and the more the decline during a downward phase, the more volume shrinks, the higher the reliability of MACD divergence signals indicating a trend reversal.

In intraday trading, MACD divergence does not necessarily lead to an immediate trend reversal. If the trend is still strong and not yet exhausted, or if the decline or rise is not yet mature, the current trend may continue for a while, and the reversal after divergence might be delayed. Especially if, during this period, limit-up or limit-down boards appear, it indicates that the main trend is still strong and has not yet weakened, and divergence signals may become invalid. Afterwards, divergence may reappear multiple times before a real trend reversal occurs.

Divergence signals on daily or smaller cycles are particularly valuable for short-term sell signals. Although there are exceptions, divergence is an important early warning of potential short-term trend reversals. The absence of an immediate reversal and a renewed rise after divergence is a strong warning that danger is approaching. After divergence, if the fast and slow lines form a death cross, especially if close to the zero line, it often marks a confirmed trend reversal. The more times divergence signals are followed by a trend change, the closer the market is to reversing. Spotting divergence on the daily chart at sell points is a good habit that can often save your position.

Monthly and weekly bottom divergence signals are especially important for identifying medium- and long-term buy points. Divergence itself does not directly constitute a buy signal, but the positive signals carried by large-cycle divergence are worth noting. If the price keeps falling after divergence, it does not mean the trend will reverse immediately, but persistent divergence is a strong hint that a reversal is imminent. When the fast and slow lines cross after a bottom divergence, especially if close to the zero line, it often marks a confirmed trend reversal. The more times the price weakens after divergence, the stronger the indication of a reversal.

2. Golden cross, death cross, and entanglement

When the fast line crosses above the slow line, the MACD green line disappears or turns red, which is a golden cross, indicating that the K-line is about to enter an upward phase; when the fast line crosses below the slow line, the red MACD line disappears or turns green, which is a death cross, indicating that the K-line is about to enter a downward phase. The terms golden cross and death cross are familiar from moving average analysis and are widely understood. When these occur in different contexts, their meanings are generally similar.

If a golden cross occurs in a weak zone, and afterward the slow line or even the fast line fails to cross the zero line into the bullish zone, it indicates that the upward momentum is not strong enough, with limited strength. Only when both lines enter the bullish zone does it suggest a strong trend that may continue. Conversely, if a death cross occurs in a strong zone, and afterward the lines fail to cross the zero line into the bearish zone, it indicates that the downward momentum is not fierce enough, with limited strength. Only when both lines enter the bearish zone does it suggest a weak trend that may persist. Regular golden and death crosses can mark price movements but cannot predict the magnitude or duration of the trend and are not direct trading signals.

If MACD shows a golden cross in a weak zone, but the lines never leave the weak zone and repeatedly hover near the zero line, even forming death crosses again, it indicates that the coin or stock remains weak. In this case, watch for bottom divergence signals. If the lines eventually cross into the bullish zone, it signals that the weakness has ended and a stronger phase has begun.

Similarly, if MACD shows a death cross in a strong zone, but the lines stay within the strong zone and repeatedly hover near the zero line, even forming golden crosses again, it indicates ongoing strength. Watch for top divergence signals. If the lines eventually cross into the weak zone, it signals the end of the strong phase and the beginning of a weaker trend.

When the fast and slow lines in the weak zone form a golden cross and then quickly form a death cross again, it often indicates a new downward wave. Conversely, if in the strong zone they form a death cross followed shortly by a golden cross, it suggests the strength will continue.

If the fast and slow lines stay very close and move sideways for a period, it is called “consolidation,” reflecting market caution from both bulls and bears. If, after consolidation, the lines alternate crossing above and below, with frequent changes between golden and death crosses, it is called “entanglement,” indicating that the market is undecided and a decisive victory is near.

During consolidation and entanglement, the MACD histogram bars become very short, almost hidden within the zero line, as if hiding something. The red and green bars are hiding, but the price does not hide. If this occurs in a strong zone, the price usually consolidates or drifts sideways; if in a weak zone, the price usually declines slowly. This is similar to divergence phenomena, and the future trend depends largely on the overall market direction and the strength and willingness of bulls and bears. If near the zero line, the price tends to fluctuate narrowly, with high uncertainty.

Relying solely on technical indicators often cannot accurately predict the future trend of K-line movements, but considering other factors can help make more reliable judgments.

3. Two golden crosses and two death crosses

If the MACD’s fast and slow lines in a weak zone experience two consecutive golden crosses within a short period (two or three weeks), and the second cross is accompanied by significant volume, it may signal a substantial rebound, pushing both lines above the zero line into a strong zone. This is because, after the first golden cross, although the bears regain control and cause a death cross, the bulls are unwilling to stay low for long, quickly rallying again to form a second golden cross. The volume surge reflects the determination of the main players and the re-ignition of market enthusiasm, which can seriously shake the bears’ resolve. Without a strong reason for the bears to keep selling, a reversal to bullishness often occurs, leading to a surge in bullish power.

If the MACD in a weak zone experiences two consecutive death crosses within a short period, it may signal a sharp decline. The logic is: after the first death cross, the bulls temporarily dominate, causing a golden cross, but they are quickly overwhelmed by the bears, leading to a second death cross. Repeated failures of the bulls can cause panic and disappointment, accelerating the decline as the bears take advantage. This may be accompanied by mild volume increases, reflecting panic and disappointment.

It is important to note that if the weekly MACD shows two golden crosses in a weak zone (often called “below water”) over a period, with the lines moving very close and mostly above the slow line (with the red histogram flickering but rarely green), the longer this continues, the more persistent and intense the upcoming rally will be. Some consider this a sign of potential big bull stocks.

If this situation occurs on the daily MACD instead of weekly, the trend of the coin or stock will be relatively weaker, and the duration may not be very long.

The future movement of the coin or stock after two golden crosses or two death crosses on the MACD in a weak zone should be judged comprehensively, considering the current trend, K-line position and pattern, volume and price relations, etc.

4. Energy bars

The red and green lines of MACD are also called red energy bars and green energy bars. These bars indicate the distance between the fast and slow lines, essentially reflecting the relative change in the current and recent rate of change. They embody the transformation of the main trend and counter-trend forces. Changes in their length often precede the turning points of the fast line, meaning they are more sensitive to trend changes than the fast line itself.

MACD energy bars reflect the gradual process of trend exhaustion, embodying the principle of unity of opposites and the idea of “peak and decline” from traditional Chinese philosophy. This is not empty talk; it has practical significance.

In a bullish market, if the K-line rises sharply, the red energy bars usually expand quickly, indicating the approaching top of the phase. When adjacent red energy bars are tall and aligned, the rally is more vigorous. In a bearish market, a similar phenomenon occurs: as the K-line plunges, green energy bars expand rapidly, indicating the approaching bottom. When adjacent green energy bars are aligned and deep, the decline accelerates.

Conversely, if the red or green energy bars become extremely short, hugging the zero line and not crossing it, it indicates a critical state, and the future trend is full of uncertainty, with upward or downward movement possible at any time. Staying alert is wise, but it can be exhausting and may hinder profits; shifting focus elsewhere might be more efficient.

Using MACD indicators alone to judge short-term tops and bottoms of coin or stock prices is not very accurate; a comprehensive analysis considering other factors is more reliable.

5. Using MACD to catch intraday buy and sell points

Since MACD indicates the trend of coin or stock price movements, it is naturally often used to catch intraday buy and sell points. The basic premise is that, on the daily cycle, buy and sell points are already close or have appeared, so one can choose to buy or sell accordingly. Relying solely on MACD without this premise can be exhausting and lead to heavy losses.

Generally, in a strong market environment, shorter-cycle MACD (such as minutes) is more effective for strong coins or stocks; in weaker markets, for less strong stocks, longer-cycle MACD (such as multiple minutes) can provide better signals. If you determine through other means that the current time is suitable for trading a particular coin or stock, then when the short-term MACD shows a genuine strengthening signal, confirm with volume and price features, and consider buying; if it indicates weakness, confirm and consider selling.

When the overall market or a coin or stock is very strong, you can use the 1-minute or 5-minute intraday charts to identify buy points, and for sell points, refer to longer cycles like 15-minute or 30-minute charts to avoid premature reactions and wrong decisions.

When the market or a coin or stock is not very strong, the situation can change rapidly, and the strength of the MACD signals on very short cycles can fluctuate quickly, reducing its trend-guiding function. In this case, buying should refer to slightly longer cycles, such as 10-minute or 15-minute MACD, which provide more reliable signals. For selling, shorter cycles like 1-minute or 5-minute MACD are more responsive and help capture opportunities and exit timely, avoiding missed chances.

Short-cycle MACD reacts quickly and helps catch opportunities, but regardless of market conditions, it is necessary to consider longer cycles as well. Combining short and long cycles can maximize trading opportunities. When analyzing the timing on longer cycles, using shorter cycles to seize opportunities is a good way to avoid impulsiveness and reduce errors.

Two tips for ultra-short-term trading:

1. Sufficient space is needed. Small price fluctuations make it hard to operate profitably in ultra-short-term trading, risking wasted effort and potential losses.

2. High trading experience and skill are required. If lacking, it’s better to hold back. If you cannot suppress impulses, think in your mind, observe, record, and treat it as real trading. Only when you are confident and steady should you act, to be safer.

3. Keep some clarity

As mentioned earlier, do not rely solely on MACD. Why not make trading decisions based only on MACD? For these reasons:

First, we know that market makers often use price movements and various technical indicators to deceive traders and influence retail investors’ judgments and emotions. The only things that truly do not deceive are trend and volume. MACD reflects trend but is lagging and not very precise or reliable; it ignores volume entirely. Knowing this, it’s clear that over-relying on MACD alone is unwise.

Second, MACD reacts slowly, which allows it to filter out some random price fluctuations, making it more useful for identifying overall trends. However, buy signals from golden or death crosses are always above the current low or below the current high, respectively. If you blindly buy or sell based on these signals during small fluctuations (like consolidations or sideways movements), the price difference may be insufficient, and due to lag, you might even lose some money. When prices fluctuate sharply, especially during sudden reversals, MACD’s lag can prevent it from reflecting rapid changes, rendering it ineffective. Small fluctuations are problematic; excessive volatility is also problematic. Relying solely on MACD is not advisable.

Third, price movements are unpredictable and often irregular, often manipulated by main market players or disturbed by unforeseen forces beyond their control. For example, look at a relatively active coin or stock, especially before key turning points: MACD lines may cross back and forth between a death cross and a golden cross, with the price staying high or low, not dropping or rising as expected. Ignoring the lines, just observe the MACD crossing the zero line, and you may see short red and green bars flickering, indicating instability. This shows that MACD can sometimes fail to detect the trend. Main players do have the ability to influence the direction over a period, but unexpected forces can also intervene. Relying blindly on MACD can be dangerous.

However, setbacks can lead to gains elsewhere. Unless a coin or stock has no main market players, when MACD signals are confusing or inconsistent, it might be brewing a rare opportunity. In such cases, it’s better to step outside MACD and analyze carefully.

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