The use of MACD indicator is very simple. You just need to remember one formula: the relationship between two benchmark lines. Here the benchmark refers to the zero axis, and the two lines are DIF and DEA, which are the fast line and the slow line. You only need to find the one that changes quickly with price changes, called the fast line, and the one that changes slowly is the moving average, referred to as the slow line. Next, we will directly describe the cross relationship between the fast line and the slow line between the zero axis in 4 ways.
1. Above the zero axis
When the fast line crosses downwards through the slow line, the market is primarily focused on washing out positions. If the recent momentum looks good, one can hold positions and ignore short-term fluctuations. If the fluctuations are too large, one should reduce positions and observe the market.
2. Below the zero line
When the fast line crosses downwards through the slow line, it forms a death cross, indicating a bearish market. It is advisable to primarily focus on selling and observing the market, with the overall market showing rapid downward fluctuations in price in the short term.
When the fast line crosses upwards through the slow line, the market is primarily focused on upward corrections. Although there may be corrections, they resemble a fleeting return of brightness. The bullish momentum is waning, while the bearish momentum is strong. If there are losses from previous positions, it is advisable to exit during a market reversal to minimize unnecessary losses.
3. Mnemonic for using the MACD indicator
1. When the fast line in the MACD indicator crosses upwards through the slow line, it forms a golden cross, which is a buy signal. The higher the position of the golden cross, the stronger the buy signal. A golden cross above the zero line is strong, while below the zero line is weak.2. When the slow line in the MACD indicator crosses downwards through the fast line, it forms a death cross, which is a sell signal. The lower the position of the death cross, the stronger the sell signal. A death cross above the zero line is weak, while below the zero line is a strong death cross.
In practical operations, the MACD not only helps beginners capture strong upward points but also features bottom-fishing characteristics; it provides both buy and sell points, reflecting the golden cross and death cross. However, both are essential paths for advanced technical analysis, and understanding it greatly increases the chances of success for newcomers.
