Reviewing the MACD Indicator: Definition, Types, and How to Read It
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Reviewing the MACD Indicator: Definition, Types, and How to Read It

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Reviewing the MACD Indicator: Definition, Types, and How to Read It

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The MACD indicator or (Moving Average Convergence Divergence) is one indicator that can be used to analyze cryptocurrency movements.

To note, there are several trading indicators to help traders, ranging from Moving Average (MA), Relative Strength Index (RSI), Bollinger Band (BB), Stochastic RSI (Stoch RSI), Ichimoku Cloud, to MACD.

It is important to understand that in order to make a profit, traders, especially those who are already professionals, usually know: they need proper analysis. In this case, trading indicators become an important tool for analyzing the price of crypto assets.

Trading indicators will help traders to identify patterns, make price predictions, or also provide insight into price trends. One of the indicators that will be discussed this time is MACD. What’s that? Here is the review.

What is MACD indicator and its function

Basically, the Moving Average Convergence Divergence or MACD is an indicator that provides an overview of the relationship between two moving averages in an asset price trend.

For information, this indicator will be found in technical analysis. This indicator was created by Gerald Appel in 1979.

On the other hand, the moving average itself is the average price depicted on a trend line, which is at the opening or closing of trades every day.

Regarding its function, the MACD is often used by traders in order to understand when the price of the asset will be bullish or bearish.

This indicator has gained popularity over the years—since it was invented—and has attracted the interest of traders all over the world. This is because MACD offers convenience and flexibility.

The reason is, MACD can be used to see trends or momentum. Not surprisingly then, MACD is often used by traders in the capital market, including crypto.

Important Indicators to Look at from the MACD Indicator

The reading above the MACD usually coincides with the RSI or Relative Strength Index (RSI). This is done by traders—who use technical analysis—in order to choose market entry and exit strategies.

It should be underlined, MACD is not the same as RSI. This is because the RSI is an indicator that shows changes in the price of an asset. The RSI can also give a signal that an asset is in the overbought or oversold area of ??its current price position.

How to calculate the RSI, namely by dividing the average price increase or decrease in a certain time range (generally has a period of 14 days, with a value range of 0-100).

Therefore, MACD and RSI are certainly different from a calculation point of view. The MACD looks at the relationship of the two EMAs, while the RSI calculates the price change data.

Furthermore, MACD and RSI are often used by analysts to see a more comprehensive view of market conditions. However, sometimes these two indicators will produce different market indications from each other.

This is because the RSI indicator can be at a high number or an overbought market condition even though the MACD indicates a buying moment—and vice versa.

Types That Can Be Found on MACD

There are two types of MACD in technical analysis that traders are usually familiar with. The first type is crossover and the second is divergence.

  • Crossover

This type of crossover is understood as the art of monitoring the trend of the MACD line in comparison to the signal line. As for an asset price, it will enter the bearish zone if the MACD line crosses below the signal line. That means, traders must immediately release assets.

A bullish signal itself will occur if the MACD line crosses above the signal line and that gives a hint: traders should rush to buy the asset in question.

Usually, too, a number of traders will immediately act when the MACD line moves quickly to approach the signal line—going down or up.

However, most other traders will choose to act after the MACD line actually crosses the signal line in order to avoid the “trap”. However, the results of the crossover will be more reliable if it repeats the trend that has previously occurred.

  • Divergence

This type of divergence is a condition when the MACD line forms highs and lows opposite the highs and lows of the asset’s price. The bullish conditions will be created if the two lows on the MACD line correspond to the two bottom lines in the asset price.

How to Read and Analyze Using MACD

There are several ways to read and analyze with MACD, including the following.

  • Intersect with signal

MACD intersecting signal is one of the most common methods used by traders. The reason is, among others, because the way to read it is easy and not complicated.

  • MACD line intersects 0

When the MACD value crosses and is above the point 0, it will usually appear that there is an upward momentum in asset prices. However, if the opposite happens, be prepared for a decline in asset prices.

  • MACD histogram

Lastly, there is the MACD histogram. Usually, this method is used only to predict asset price movements. On this MACD indicator, if the Histogram line is below 0 and shrinks, then goes above 0, it means that the price may go up. If the opposite happens, it is likely that asset prices will fall.

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