Trading in the Context of MACD

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Etheros

5 min readOct 20, 2022

MACD Indicator | Binance Academy

Traders use the MACD (Moving Average Convergence/Divergence) to identify turning points and to decide easier whether to enter on market pullbacks and capture most of the movement until the trend begins to reverse. MACD is a trend, following momentum indicator widely used by traders. Although MACD is an indicator subject to the stigma of lagging indications, it can be very useful in identifying possible trend changes. It oscillates above and below the zero line, also known as the midline. The shorter moving average is subtracted from the longer moving average to obtain the MACD value. The indicator is completed by the signal line, which is the exponential moving average of MACD. The blue line is MACD and the red line is the signal line. When the blue line crosses the red line in an uptrend, it is a buy signal, and when the blue line falls below the red line, it is a sell signal. An intersection above the central line is also a buy signal.

MACD Line | SIGNAL line

Let’s look at how to use the indicator for better entries and exits from different positions. How MACD is analysed during price pullbacks and uptrends? Let’s take a brief look at the importance of divergence on MACD. Read on to find out more.

Adapting the Index to the Volatility of the Cryptocurrency Market

Compared to traditional markets, cryptocurrencies experience large, dynamic price movements over shorter periods of time. Therefore, market entries and exits should be quick and decisive to capture a large portion of the movement, but with a reduced risk of opening a position that may end in a loss. When a new uptrend starts, it usually lasts for several weeks or months. However, every bull phase is subject to corrections. Traders should aim to stay with the trend and not be stopped out by every minor price reversal that may happen along the way.

A trader’s goal should be to open a position early when a new uptrend begins, and stay in that position until a trend reversal is signalled. Of course, this is easier said than done. If the indicator gives too many signals, several unwanted trades will appear, which will involve large commissions and may affect the trader’s emotions negatively. On the other hand, if the timeframe is chosen to give fewer signals, a large part of the trend may be missed because the indicator will react too slowly when identifying corrections. This problem was addressed by Gerald Appel, the creator of MACD, in his book Technical Analysis: Power Tools for Active Investors.

Technical Analysis: Power Tools for Active Investors — Gerald Appel

Appel highlights how two MACD indicators can be used during strong trends, with the more sensitive one used for entries and the less sensitive one for exits.

Are two MACDs Better Than One?

The default value used for the MACD indicator by most charting software is a combination of 12 to 26 days. However, for the following examples, let’s use one MACD with a combination of 19 to 39 days, which is less sensitive and will be used to generate sell signals. The other will be more sensitive, using a combination of MACDs from 6 to 19 days, which will be used to identify buy signals.

In September 2020, bitcoin (BTC) was quoted in a small price range and both MACD indicators were largely flat during this period. In October, as the BTC/USDT pair began an uptrend, MACD triggered a buy signal when the indicator crossed the midline in mid-October 2020.
Another example — Binance Coin (BNB) crossed the midline on 7 July 2020, signalling a buy. However, the sensitive MACD quickly reversed and fell below the signal line on 6 July as the BNB/USDT pair entered a minor correction. In comparison, the less sensitive MACD stayed above the signal line until 12 August 2020, capturing most of the trend.
Traders who find it difficult to track two MACD indicators can also use the default combination of 12 to 26 days. Litecoin’s (LTC) climb from around $75 to $413.49 generated five buy and sell signals. All trades generated good entry (indicated as ellipses) and exit signals (indicated by arrows).

How can MACD Signal Corrections?

Traders can also use MACD to buy on pullbacks. During uptrend corrections, MACD falls to the signal line, but when the price returns to the uptrend, MACD bounces. This pattern, which looks like a hook, can provide a good entry opportunity.

Pullback Trade | Long MACD | Source: Tradingsetuoreview.com

MACD Divergences Can Also Signal a Change in Trend

Between 21 February 2021 and 14 April, bitcoin’s price continued to reach higher and higher highs, but the MACD indicator reached lower highs during this period, forming a bearish divergence. This was a sign that momentum was waning. In such cases, traders should exercise caution and avoid opening buy trades. The long bearish divergence in this case ended with a big drop.

Some Important Findings

The MACD indicator captures a trend and can also be used to measure the momentum of an asset. Depending on the market conditions and the type of asset analyzed, traders can change the MACD period setting. If the price moves fast, a more sensitive MACD can be used. For assets whose price moves more slowly, the default setting or a less sensitive MACD can be used. For better results, traders can also use a combination of the less sensitive and more sensitive MACD indicator.

There is no perfect indicator that works all the time. It will happen that even with the above permutations and combinations, the price movement will run contrary to a trader’s expectations.

All these great indicators such as MACD will certainly be reflected in Etheros’ stock price. Launching widespread sales for Etheros as a landmark in the metaverse will be quite an opportunity for seasoned traders for whom the use of technical indicators is an everyday occurrence. Reading the charts correctly can be helpful in effectively planning to buy or sell ETS against other currency pairs such as BTC, USDT, ETH or others that ETS will be trading with.