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Moving Average Convergence Divergence (MACD) — A Quick Look

TradingView is a massively popular charting system that is integrated with Bitget. One of TradingView’s many great features is that it has numerous inbuilt indicators. Today we are going to have a look at Moving Average Convergence Divergence (MACD), another one of the most popular indicators that you can use to improve your trading!

Did you read our articles about Bollinger Bands and Relative Strength Index? You should check them out first!

First, to find MACD in Bitget, go to the Contract Trading section of Bitget, click the Indicators button here and scroll or search to find MACD.

Moving Average Convergence Divergence (MACD)

MACD is another hugely popular indicator that is used by traders, often in conjunction with Bollinger Bands and RSI.

MACD is a trend-following momentum indicator that shows the relationship between 2 exponential moving averages (EMA) of a securities price.

The MACD is calculated by subtracting the 26-period from the 12-period EMA. Therefore, MACD has a positive value when the 12-period EMA is above the 26-period EMA, and vice versa.

The MACD Signal Line is a 9-period EMA of a securities price.

The MACD Histogram shows the difference between the MACD and MACD Signal Line.

In the chart below:

The MACD is the Red line.

The MACD Signal Line is the Blue line.

The MACD Histogram is the Yellow Histogram.

Going Deeper

The Crossover

The MACD Crossover is the most widely used entry signal by traders. The basic theory is that traders should long the asset when the MACD (red line) crosses above its signal line (blue line) and short the asset when the MACD crosses below the signal line.

MACD Crossover

Bullish & Bearish Divergences

A divergence takes place when the MACD indicator contradicts price action.

A regular divergence is indicated by higher trading prices and lower indicator values (during an uptrend), and lower trading prices and higher indicator values (during a downtrend).

These divergences signal a possible trend reversal.

Bullish Divergence

A bullish divergence is a pattern that occurs when the price falls to lower lows, while the MACD indicator reaches higher lows. This would be seen as a sign that market momentum is strengthening, and that the price could soon start to move upward to catch up with the indicator.

Bullish Divergence Diagram

Bearish Divergence

A bearish divergence is a pattern that occurs when the price reaches higher highs, while the MACD indicator makes lower highs. Although there is a bullish attitude on the market, the discrepancy means that the momentum is slowing.

Bearish Divergence Diagram

Hidden Divergence

A hidden divergence occurs when the MACD indicator makes a higher high or a lower low while the price action does not. This often indicates that there is still strength in the prevailing trend, and that the trend will continue.

Limitations to MACD

One of the main problems with divergence is that it can often signal a possible reversal but then no actual reversal actually happens —know as a false positive.

The other problem is that divergence doesn’t forecast all reversals. In other words, MACD may predict too many reversals that don’t occur and not enough real price reversals.

A Question for Readers

What indicators do you use when trading?

Does it depend on the time frame you are looking at trading in, the trading pair, or other factors?

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Bitget was established in 2018 and is located in Singapore, it’s a global leading cryptocurrency derivatives exchange and ranks top 5 worldwide.