Moving Average Convergence Divergence (MACD) is a momentum indicator used in technical analysis that shows the relationship between two moving averages of an asset’s price. It identifies trends, reversals, and momentum, serving as a tool for traders to generate buy or sell signals.
Mechanism
MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA, resulting in the MACD line. A nine-period EMA of the MACD line itself, known as the “signal line,” is then plotted on top of the MACD line, acting as a trigger for buy and sell signals. The divergence or convergence of these lines indicates shifts in momentum.
Methodology
The methodology involves observing crossovers of the MACD line and the signal line, where a cross above typically suggests a bullish trend and a cross below a bearish trend. Furthermore, divergence between the MACD and the asset’s price can indicate an impending reversal. Traders apply this indicator to crypto assets to identify potential entry and exit points, integrating it into algorithmic trading strategies for smart order routing or options pricing models.
The crypto market's systemic shift from correction to rally, led by surging altcoins, presents critical opportunities for strategic capital deployment.
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