A MACD indicator is an excellent tool that follows trends, which makes it a useful means of working out the ideal point of entry. Here we discover how it works.
- What does trend-following momentum indicator mean?
- Spotting an entry point
- Reading MACD crypto signals
MACD stands for ‘moving average convergence divergence’. It’s been defined as a tool that shows how pair of moving averages over price relate to each other. Calculating the MACD involves taking away the 26-period Exponential Moving Average (EMA) from the 12-period EMA. This gives us the MACD line. A nine-day EMA of the MACD is known as the “signal line.” By plotting its over-the-top of the MACD indicator line, you effectively get a trigger of when to buy and sell.
If that explanation of the MACD indicator sounds like too much to process in one go, don’t despair. We are going to break each of the elements down in turn and explain what they mean.
What does trend-following momentum indicator mean?
A trend-following momentum indicator lets you know how strong the current price movement is, i.e. whether it’s going to keep moving in the direction it’s currently going in.
Using the MACD indicator gives you a better chance of predicting whether the price will continue climbing or falling on its current path. It also lets you identify the start of that trend. It’s not just the securities though, as the definition suggests because MACD crypto use is also an option.
Spotting an entry point
The entry point (where the indicator suggests that momentum is about to pick up from) is usually found at the point where a pair of exponential moving averages (EMAs) cross each other.
To find the MACD line you need to take the 26-period EMA away from the 12-period EMA. A 9-day EMA of the MACD indicator line is referred to as a “signal line”.
Reading MACD crypto signals
In a typical graph, you’ll see a pair of lines, one for MACD, and one to represent the signal line. When the MACD indicator crosses over the signal line it’s telling you to buy, and when it crosses below the line it’s telling you to sell. It’s as simple as that!
I’m sure that like many people you would love to have a trend-following momentum indicator that tells you when to dip in or out of other aspects of your life, but until someone invents one, you will just have to be thankful for the one we do have, the MACD crypto indicator. As a crypto trader, it’s the closest thing you’ll ever have to a crystal ball.