Crypto Academy Week 14 - Homework Post for [@kouba01] // MACD

• Open the chart of any pair you want to trade , in my case I will be using DOT/USDT

• On the chart go to the indicator button and search for MACD

• Set up MACD to 12,26,9

SIGNAL LINE

This line serves as a guideline for traders in the market; whenever the MACD line crosses the signal line, it indicates a buy or sell signal; traders can buy when the MACD line crosses above the signal line and sell when it crosses below.

MACD LINE

As is stated above it is calculated my manipulating two Exponential Moving Averages (EMA) as shown below:

It is use together with the signal line as I explain above to determine trend crossover and reversal.
Looking at how this MACD work you come to realise that the MACD gets a positive value when the 12-period EMA is above the 26-perio moving average and it also has a negative value when the opposite happens.
Note that when you activate MACD in your chart the will be two lines in the main price chart, these represent the EMA’S the red line is the 12 period EMA and the blue line is 26-period EMA.

HISTOGRAM

This is feature that represent the distance between the two line in the MACD Indicator (IE: MACD line and the Signal line) on a bar chart.
The line from which the histogram bars are formed is called the zero line , whenever the MACD line is above the signal line the histogram will also be above the zero line and when the MACD line is below signal line the Histogram also will go below the zero line .
With this traders can measure the momentum of either an upward trend or a downward trend.

As we learnt last week RSI indicates whether a particular coin was overbought or over sold to give an indication to a trader if there is possible reversal , while MACD measure the relationship between two EMA’s , on a serious note one can combine this tools for a better results.
In my case I will prefer using the MACD because it has three different factors that combines to give me a signal.
Although sometimes this MACD give false indication, it still have so many factors that can give a trader competent signals.

”How to use MACD with crossing MACD line and signal line? And How to use the MACD with the crossing of the zero line?

• From the graph above you see that anytime there is a cross there is a change of trend, any time the MACD line which is the blue line cross above the signal line which is red it shows that there is an uptrend coming up hence buy, on the other hand when it crosses below it also indicate a new downtrend hence sell.

• Now whenever the MACD line crosses the zero line downwards it tells traders to sell and when it crosses it upward it tells them to buy.

”How to detect a trend using the MACD? And how to filter out false signals?

Here, I'm going to use the histogram or the crossing method I described above. Using the histogram, we look at the momentum of the bar formed from the zero line; sometimes the bars are very long and well colored, and at some point they begin to fade and diminish in size, indicating that the direction in which the chart is moving is about to change, allowing you to change your position quickly hence the trend is changing as shown below :

As we all know indicators are not perfect , so it require to use more than one , sometimes MACD give false signal especially when using the divergence technique , when the price of the chart you are observing in a triangle pattern the histogram will slow down it formation , so if one is not careful he/she might think a new trend is about to form a new trend , to detect this you need to look at the main chart to see if there is a side way movement before trusting the momentum of the histogram.

”How can the MACD indicator be used to extract points or support and resistance levels on the chart?

• Looking at the above chart you realise that both the MACD and Signal line are finding it difficult to cross above one particular line at 2,8500 which is the green line , this indicate there is a strong resistance at that particular point.

• It also tested a point below which I represented with white line several time and bounced back, this will serve as the support.

”Review the chart of any pair and present the various signals from the MACD

From the chart above, we can see that the price is struggling to break through the blue support in the main chart; let's read the MACD chart to figure out what to do.

• From the MACD Chart above you can clearly a test to the fact that the MACD line is struggling on the whit support line , hence the price is trying to go down but the bulls are becoming stronger there to pull it back

• Looking at the MACD line it was below the signal line and also below the zero line hence there is down trend right now

• From the MACD line this is a selling time , the histogram momentum is also very strong showing the down trend

• From the above analysis traders are advice to sell.

Finally, I'd like to thank the entire Steemit team for giving us the opportunity to archive a new skill each week, and I wish all professors blessings for the time they spend preparing the weekly lessons.