Practical Guide to Using Moving Average Convergence Divergence (MACD) in Cryptocurrency Investment

Cryptocurrency markets share many similarities with traditional financial markets. By mastering technical analysis skills, you can make more accurate market judgments. This article provides a detailed, practical explanation starting from the basics of “What is MACD”—a tool trusted by many professional investors—through to its actual operational methods.

What is MACD: Understanding the Basic Structure and Calculation Method

MACD stands for Moving Average Convergence Divergence, a technical analysis tool that combines short-term and long-term exponential moving averages (EMA).

The advantage of this tool is that it quantifies the divergence between different period moving averages, allowing for an objective understanding of the market trend direction. It helps to avoid being influenced by short-term market noise and enhances the accuracy of medium- and long-term investment decisions.

MACD Calculation Formula:

• MACD Line = Short-term EMA (12 days) – Long-term EMA (26 days)
• Signal Line = EMA (9 days) of the MACD Line

On the chart, two lines are displayed: the MACD line (yellow DIFF) and the signal line (purple DEA). The difference between them is visualized as a histogram (green/red). When above the zero line, it indicates upward momentum; when below, it suggests downward momentum.

Practical Signals: Golden Cross and Dead Cross

When using MACD, the most important buy and sell signals are the “Golden Cross” and the “Dead Cross.” Once these occur, they often precede significant market movements. Combining them with other technical indicators can lead to more precise trading decisions.

Golden Cross: Bullish Signal Formation

This occurs when the MACD line crosses above the signal line from below. It is considered a strong indication of the start of an upward trend, reflecting increased buying interest among investors.

Dead Cross: Warning of a Sell Signal

Conversely, when the MACD line crosses below the signal line from above, it signals the beginning of a downtrend. This is an important alert to consider closing positions or strengthening risk management.

Example: Application in BTC Market

On February 28, 2022, a golden cross appeared on the 4-hour chart of BTC. Subsequently, BTC’s price rose from 38,413 USDT to 45,296 USDT within a week, providing about an 18% profit opportunity.

On March 3 of the same year, a dead cross formed, and BTC’s price sharply dropped from 44,346 USDT to 37,222 USDT. Accurately interpreting this signal could have minimized losses.

Meaning and Adjustment of MACD Settings (12, 26, 9)

The standard setting for MACD(12,26,9) is used on crypto exchanges. This numerical system was adopted based on the historical context of traditional stock markets, which operated on a five-day week and a trading calendar averaging 26 days per month.

However, it can be customized according to trading style. Short-term traders might prefer more sensitive settings like (5,13,5), while long-term investors might choose more conservative settings such as (19,39,9), to align with their trading strategies.

Divergence: An Important Signal for Trend Reversal

Divergence occurs when the price moves in one direction while MACD moves in another, often indicating an impending trend reversal.

Bearish Divergence: Warning of Decline

The price continues to rise, but the MACD indicator shows a downward trend. This suggests waning buying pressure and predicts a significant price drop in the near future. The larger the divergence, the greater the potential decline afterward.

Bullish Divergence: Preparation for Rise

The price is trending downward, but MACD indicates upward movement. This suggests the market is at a bottom and a trend reversal to the upside may be approaching. Investors considering building long positions tend to increase during this phase.

Strengths and Weaknesses of MACD: Correct Understanding is Key to Investment Success

Major Advantage

MACD excels at identifying medium- to long-term major trends. It helps to determine the fundamental direction of price movement without being misled by temporary fluctuations, making it highly effective for medium- and long-term investment strategies.

Limitations to Recognize

However, because MACD reacts relatively slowly, it is not suitable for day trading strategies that involve frequent buying and selling within short time frames. For trading styles requiring rapid response to volatile price movements, combining MACD with more sensitive indicators is essential.

A Comprehensive Approach to Investment Success

While MACD is a powerful technical analysis tool, relying solely on it for investment strategies can be risky. Integrating the following elements can lead to more robust decision-making:

• Using Multiple Indicators: Combining MACD with other technical tools like RSI or Bollinger Bands helps to filter out false signals.
• Incorporating Fundamental Data: Monitoring project development progress, partnership announcements, regulatory changes, and other fundamental factors is crucial.
• Reading Market Sentiment: Trends on social media, news flow, and investor psychology are important elements that should be checked against MACD signals.
• Strict Risk Management: No matter how precise your analysis, setting stop-loss levels and managing position sizes are indispensable.

The current BTC price is 91.71K USDT, recording a 1.41% increase over 24 hours. Markets are constantly evolving, and technical analysis methods including MACD should be continuously learned and practiced. Fully understanding the basics and flexibly adapting to market changes are key to long-term investment success.