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Crypto Day Trading with a MACD Technical Indicator Strategy

Learn everything about crypto day trading with the MACD technical indicator for profitable strategies and trading results. MACD indicator combined with AI.

Crypto day trading with the MACD technical indicator for the crypto markets
Crypto day trading with the MACD technical indicator for the crypto markets

What is a Technical Indicator in Crypto Trading?

In cryptocurrency trading, a technical indicator is a mathematical calculation or pattern-based tool that traders use to analyse historical price data, identify trends, and forecast future price movements of cryptocurrencies or other assets. These indicators are based on statistical calculations derived from a specific cryptocurrency’s or trading pair’s price, volume, or open interest.

Types of Technical Indicators used for Trading

Technical indicators assist traders by providing information about market trends, volatility, momentum, and potential entry and exit points for trades. They are broadly classified into several types, which include:

  • Trend Indicators
  • Oscillators
  • Volume Indicators
  • Volatility Indicators

Trend Indicators: Moving averages, and Bollinger Bands are examples of trend indicators that can help identify the direction of the current market trend. The MACD (Moving Average Convergence Divergence) is one of those technical indicators we examine today for your crypto trading.

Oscillators: Oscillators are indicators that are used to identify overbought or oversold market conditions, indicating potential reversal points. Relative Strength Index (RSI), Stochastic Oscillator, and Commodity Channel Index (CCI) are a few examples.

Volume Indicators: These indicators are concerned with the trading volume that accompanies price movements. On-Balance Volume (OBV) and Volume Weighted Average Price (VWAP) are two of them.

Volatility Indicators: These indicators assess the volatility or rate of change of a cryptocurrency’s price. Average True Range (ATR) and Bollinger Bands are two examples.

To make informed decisions about buying or selling cryptocurrencies, traders use technical indicators in conjunction with other forms of analysis such as fundamental analysis, market sentiment, and news. While technical indicators can be useful, they are not foolproof and should be used in conjunction with other types of analysis and risk management strategies. Furthermore, different indicators may produce contradictory signals, so traders frequently employ multiple indicators to confirm their trading decisions.

What Is Moving Average Convergence/Divergence (MACD)?

Moving average convergence/divergence (MACD, or MAC-D) is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of a security’s price. The MACD line is calculated by subtracting the 26-period EMA from the 12-period EMA.

The MACD line is the outcome of such calculation. A nine-day EMA of the MACD line is called the signal line, which is then plotted on top of the MACD line, which can function as a trigger for buy or sell signals. Traders may buy the security when the MACD line crosses above the signal line and sell—or short—the security when the MACD line crosses below the signal line.

There are various ways to interpret MACD indicators, but the most popular ones are crosses, divergences, and swift rises and falls.

Formula for MACD Technical Indicator

MACD is calculated by subtracting the long-term EMA (26 periods) from the shortterm EMA (12 periods). An EMA is a type of moving average (MA) that places a greater weight and significance on the most recent data points.

MACD=12-Period EMA − 26-Period EMA

The exponentially weighted moving average is another name for the exponential moving average. In comparison to a simple moving average (SMA), which gives equal weight to all observations across the time, an exponentially weighted moving average responds more strongly to recent price movements. You can use the MACD technical indicator within our Price Prediction Dashboard and the TradingView integration.

Learnings from the MACD Crypto Indicator

MACD has a positive value (shown as the blue line in the lower chart) whenever the 12-period EMA (indicated by the red line on the price chart) is above the 26-period EMA (the blue line in the price chart) and a negative value when the 12-period EMA is below the 26-period EMA.

The level of distance that MACD is above or below its baseline indicates that the distance between the two EMAs is growing. The two EMAs applied to the price chart in the following chart may be seen in relation to the MACD (blue) crossing above or below its baseline (red dashed) in the indicator below the price chart.

Technical indicator for crypto trading MACD: Example for the signal line
Technical indicator for crypto trading MACD: Example for the signal line

MACD is often displayed with a histogram (see the chart below) that graphs the distance between MACD and its signal line. The histogram will be above the MACD’s baseline, or zero line, if the MACD is above the signal line. The histogram will be lower than the MACD’s baseline if the MACD is below its signal line. The histogram of the MACD is used by traders to determine when bullish or bearish momentum is strong, as well as potential overbought/oversold indications.

Comparison: MACD vs. Relative Strength

The relative strength index (RSI) aims to signal whether a market is considered to be overbought or oversold in relation to recent price levels. The RSI is an oscillator that calculates average price gains and losses over a given period of time.

The default time period is 14 periods with values bounded from 0 to 100. A reading above 70 suggests an overbought condition, while a reading below 30 is considered oversold, with both potentially signaling a top is forming, or vice versa (a bottom is forming).

On the other hand, unlike the RSI and other oscillator studies, the MACD lines do not have definite overbought/oversold values. Instead, they operate relative to one another. This means that a trader or investor should pay attention to the level and direction of the MACD/signal lines in relation to earlier price moves in the security in question, as illustrated below.

Example 3 for the MACD crypto indicator trading strategy
Example 3 for the MACD crypto indicator trading strategy

MACD measures the relationship between two EMAs, while the RSI measures price change in relation to recent price highs and lows. These two indicators are often used together to give analysts a more complete technical picture of a market.

These indicators both measure momentum in a market, but because they measure different factors, they sometimes give contrary indications.

For example, the RSI may show a reading above 70 (overbought) for a sustained period of time, indicating a market is overextended to the buy side in relation to recent prices, while the MACD indicates that the market is still increasing in buying momentum. Either indicator may signal an upcoming trend change by showing divergence from price (price continues higher while the indicator turns lower, or vice versa).

Accurate AI Crypto Price Predictions to Maximise your Trading Results
Accurate AI Crypto Price Predictions to Maximise your Trading Results

Conclusion on the MACD Crypto Indicator

So now you know everything there is to know about the crypto indicator known as MACD. This is one of many technical indicators used by Crypticorn’s AI to make predictions.

When trading cryptocurrency, you should always try to combine a few indicators and not rely solely on one indicator to make trading decisions. Please leave your thoughts in the comments section below.

Co-Author: Xilam, Expert Crypto Trader

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