What is MACD in crypto trading?

MACD in crypto is a chart indicator that tracks momentum by comparing two moving averages of a coin's price. The name stands for moving average convergence divergence, because the averages come together and pull apart as a trend speeds up or slows down. Gerald Appel developed it in the late 1970s for stock markets, and crypto charting tools use the same formula.

What is MACD in crypto trading?

MACD has three parts, usually shown in a panel below the price chart.

• The MACD line is the 12-period exponential moving average of closing prices minus the 26-period exponential moving average. An exponential average gives more weight to recent prices.
• The signal line is a 9-period exponential average of the MACD line itself, so it moves more slowly.
• The histogram is a set of bars showing the gap between the MACD line and the signal line.

Each period is one candle. On a daily chart, the settings mean 12 and 26 days. On a four-hour chart, they mean 12 and 26 four-hour candles. Fidelity notes that the 12, 26 and 9 settings can be changed. For the chart basics, see how to read a crypto chart.

What is a MACD cross?

A MACD cross is when the MACD line crosses another line. There are two kinds.

A signal line crossover happens when the MACD line crosses its signal line. Crossing above is usually read as a bullish signal and crossing below as bearish. Fidelity says the further the cross is from zero, the stronger traders consider it. StockCharts adds that crosses at extreme readings call for caution.

A centerline crossover happens when the MACD line crosses zero. That happens exactly when the 12-period average crosses the 26-period average. Above zero means the shorter average is higher, so recent upward momentum is stronger. Below zero means the reverse. Moving average crossovers over much longer periods are discussed in our guide to the 200-week moving average.

How do you read the MACD histogram?

The histogram shows whether the gap between the two lines is growing or shrinking. Bars that get taller mean momentum is building in that direction. Bars that shrink toward zero mean momentum is fading, and a signal line cross may be near. When the bars flip from positive to negative, or back, a crossover has happened.

Traders also look for divergence. If price makes a new high but MACD makes a lower high, upward momentum may be weakening. StockCharts warns that these divergences often appear in strong trends without a reversal following.

What are the limits of the MACD indicator?

MACD is built from moving averages, so it reacts after price moves rather than before. Fidelity notes it whipsaws in sideways markets, as the lines cross back and forth. StockCharts points out that MACD has no fixed range, so unlike RSI it is not designed to flag overbought or oversold levels. Its values also depend on the asset's price, so readings cannot be compared between coins with very different prices.

It also says nothing about a project's fundamentals.