Traders all over the world have been using a wide range of indicators that help them decide which are the best moments to enter or exit the market or a specific trade. One of the most popular tools is the so-called MACD (Moving Average Convergence Divergence).
We will be sharing with you some of the most important things to take into accounts about the MACD trading tool and how you can use it to improve your trading strategies. Take into consideration that all the information you find in this article shouldn’t be taken as financial advice.
What is the MACD?
The MACD indicator is one of the most important tools that traders have in order to understand whether it is time to buy or sell an asset. Users traditionally use the MACD 9, 12 and 26, which is the standard way of getting proper information about the price of specific digital assets. The MACD can also be used in other markets. The MACD is a great indicator of momentum in the market.
You can use the MACD tool to understand which is the general trend of the market and spot the moments in which you can enter or exit a trade. As you can see in the image below, you can see all the information about the MACD and how it looks in a chart.
Understanding Buy and Sell Signals with MACD
As mentioned before, with the MACD we can have clear data about which could be a good moment to enter the market. Combining the MACD with other tools can certainly be very useful and it will be much more efficient.
The red line that you will see in the following chart would be signalling which is going to be a good moment to take action. Depending on the way the red line behaves we will then make a decision on whether to buy or sell a security or cryptocurrency. The red line represents the 9 MACD.
As you can see, there are red and yellow circles in this chart. All these circles represent a moment in which it could be profitable to enter or exit the market. Red circles will indicate you which is a good moment to exit a trade and sell your stock, meanwhile when you see the yellow circle, this would indicate a bull signal.
When the MACD is above the zero line, this could indicate the market is in a bull trend, however, when it falls below the zero line, it could turn into a bear trend.
The MACD will also include a series of histograms that would be indicating where the trend is moving. If the histogram goes upwards, then it will be indicating a moment in which it would be good to enter the market. If the histograms are moving downward, then we should consider selling our stock.
Nonetheless, things can change at any moment. When you see the histogram changing direction, this could be an early indication of trend changing. If that happens, it will be certainly important to read other indicators and see what they are trying to tell us so we can make a more informed decision.
The MACD is a great tool if we combine all the information that it can provide to us. The more we understand it, the easier it will be for us to better trade in the market. In the chart above, the MACD was very useful to trade Bitcoin against Tether (USDT), one of the most popular cryptocurrencies and stablecoins in the world.
Nonetheless, as we have mentioned in the previous section, the MACD should be used with other indicators that would better show us which could be good moments to buy or sell a virtual currency or any other asset we are following.
The MACD is one of the most useful indicators in the market for investors and traders that are operating in the industry. It provides the user with very valuable information that is going to help him make better decisions and eventually increase his profits over time – if everything goes as planned.
The main goal is to combine the tools and data provided by the MACD with other indicators. In this way, the user will have the chance of being sure that the movement they have made is going to be in the right direction. Nevertheless, the MACD can fail as any other indicator, this is why you should have the necessary experience and knowledge before you start using this tool.