MACD Ultimate Guide + 5 Profitable Trading Strategies

The MACD and RSI are both trend-following momentum indicators often used in tandem to give analysts and traders a better technical understanding of market conditions. While the MACD measures the relationship between two moving averages, the RSI measures price change in relation to recent price levels.

• When talking about cryptocurrency price movements, MA represents the line on a graph that shows the average value of data collected over a defined period of time.
• The final part of the indicator is the Moving Average Convergence Divergence histogram.
• The MACD Histogram represents the difference between MACD and its 9-day EMA, the signal line.
• In other words, if prices are making higher highs and the MACD makes corresponding higher highs, then we have convergence.
• No doubt many traders would have thought Bitcoin was way overbought and would have potentially shorted every time the trigger line crossed below the MACD stock indicator.
• The MACD shows a positive value once the fast EMA is above the slow EMA and a negative value, if the slow EMA is above the fast EMA.

Below this box, you’ll see the MACD graph, which is the difference between the 12-day and 26-day exponential moving averages of the security’s price. This is also where you can find the signal line, which serves as an indicator for timing trades. For example, when the signal line crosses the MACD, either buy or sell the security. To calculate the MACD, we should get the values for the short- and long-term EMAs first. The idea of using exponential moving averages is because they put more weight on the most recent price changes .

How MACD Works

A momentum indicator calculates the change or speed of the asset’s price movement. An explanation of what the MACD trading indicator is and a guide to using the MACD as part of a day trading strategy. Some traders attribute special significance to the MACD line crossing the signal how to interpret macd line, or the MACD line crossing the zero axis. Significance is also attributed to disagreements between the MACD line or the difference line and the stock price . The average series is also a derivative estimate, with an additional low-pass filter in tandem for further smoothing .

A lower MACD high-price level shows the price didn’t have the same velocity it had last time it moved higher , but that doesn’t necessarily indicate a reversal. Price momentum can’t continue forever so as soon as the price begins to level off, the MACD trend lines will diverge . MACD can be used as a trend indicator and a momentum indicator. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube.

MACD and divergence

The further away from zero, the stronger the generated signal is. Many experts consider candlestick charting to be both an important complement to MACD, and more effective than MACD on its own. In EUR/USD’s 1-hour chart above, the fast line crossed above https://www.bigshotrading.info/ the slow line while the histogram disappeared. This suggested that the brief downtrend could potentially reverse. This means that we are taking the average of the last 9 periods of the “faster” MACD Line and plotting it as our “slower” moving average.

• It is used to determine the strength and momentum of a trend and is calculated on price data, which is plotted as a time series.
• The EMA is like a regular moving average, except more weight is given to newer data.
• A trending chart is one where an asset’s price is either rising or falling continuously.
• Since the MACD is based on moving averages, it is a lagging indicator.
• If the bars are shrinking, then the two EMAs are converging, and a potential signal change may occur.
• In that case, if they are getting smaller, it means the bears are weakening.