[In-depth interpretation of the MACD indicator] #BTC
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1. Definition of MACD
The Exponential Moving Average Convergence Divergence (MACD) was proposed in 1979 (by Gerald Appel) and is a common technical analysis tool in cryptocurrencies, developed from the double moving average, used to analyze the strength, direction, trend, and momentum of price changes.
2. Components of the MACD indicator
The DIF line represents the speed of price changes (fast line) in the short term, defaulting to 12EMA.
The DEA line represents the speed of price changes (slow line) in the medium term, defaulting to 26EMA.
12-day EMA = previous day's EMA (12) * 11/13 + today's closing price * 2/13
26-day EMA = previous day's EMA (26) * 25/27 + today's closing price * 2/27
DIF = today's EMA (12) - today's EMA (26)
DEA (MACD) = previous day's DEA × 8/10 + today's DIF × 2/10
The calculation is a bit difficult; those good at math can study it, while others just need to understand the basics.
The higher the position of these two lines above the zero axis, the faster the price increases; the lower the position below the zero axis, the faster the price decreases.
In simple terms, the fast and slow lines are calculated using EMA, and the histogram is derived from the difference between the fast and slow lines.
3. Basic principles that the MACD indicator should follow
(1) When the fast line and slow line are above the zero axis, it indicates a bull market.
(2) When the fast line and slow line are below the zero axis, it indicates a bear market.
(3) Histogram shrinkage and expansion
(4) The MACD indicator will become distorted in a volatile market.
4. MACD buy and sell signals
(1) Golden cross and death cross
When the fast line moves from below to above the slow line, the MACD golden cross is completed, indicating that the price's upward speed in the short term has exceeded the medium-term upward speed. This is a signal that the price will accelerate upwards.
When the MACD golden cross is completed, it is a bullish buy signal, and you can actively buy at this time.
(2) Zero axis breakthrough
When the fast and slow lines break through the zero axis from below, it indicates that the price has shifted from a downtrend to an uptrend. This is a signal for the price to continue rising in the future.
First buying point
In the MACD indicator, the fluctuations of the fast line are more agile than those of the slow line. When the fast line breaks through the zero axis, it indicates that the price has entered an upward trend in the short term, and the slow line will also complete this breakthrough in the future. At this point, you can buy 50%.
Second buying point
When the slow line also breaks through the zero axis, it indicates that the price has entered an upward trend in the medium term. At this point, you can add to your position.
(3) Divergence pattern (best used)
When the price continuously sets new lows during a sustained decline, if the MACD histogram does not set a new low but instead shows a pattern of higher lows, a bottom divergence is formed.
The MACD histogram and price divergence pattern indicate that the price is still in a downtrend, but its internal downward momentum is weakening. There is a possibility of a bottoming rebound in the future.