For beginners, trading cryptocurrencies can be challenging. Deciding on the right strategy can be troublesome as you explore various options and their success rates.
But one strategy that can greatly assist you when starting your trading journey is the MACD (Moving Average Convergence Divergence) oscillator. Many traders rely on this strategy to make profitable trades.
Now, let’s dive deep into understanding the MACD trading strategy so that you can also use it effectively.
What is the MACD?
The MACD stands for Moving Average Convergence Divergence. Traders use this strategy to make profitable trades by finding the right entry and exit points.
The MACD only has 4 fundamental components: the MACD line, made from the 12-day moving average, the signal line, composed of the 26-day moving average, the zero line, which is set at zero, and the histogram, which shows the difference between the MACD line and the signal line.
How to Use the Strategy?
Now, on your chart, press the indicators tab, type “MACD” and add it to your chart.
The MACD line is blue, and the signal line is orange. You can customize if you want to use different colors by pressing the settings tab on the MACD placed at the bottom.
When the MACD line crosses above the signal line, it’s a bullish crossover, indicating potential upward momentum. Conversely, when it crosses below the signal line, it’s a bearish crossover, suggesting potential downward momentum. Crossing the zero line doesn’t directly imply opening a short position; it generally signifies short-term momentum – above for potential buying opportunities and below for considering profit-taking or reducing long exposure.
How to Trade Using the MACD?
In this example, we’re diving into swing trading, a strategy that thrives on higher timeframes. So, on your TradingView or exchange account, switch to either the four-day, weekly, or monthly timeframe.
When learning the oscillator, I recommend sticking to the weekly chart, which has consistently performed well, especially in Bitcoin’s case. Once you’ve selected the weekly timeframe, your next step is to pinpoint clear crossing points on Bitcoin’s price history.
In practice, if you analyze Bitcoin’s historical data, you’ll notice that whenever the MACD crosses below the signal line, it often precedes a significant and prolonged price decline. For swing traders, this can translate into highly profitable short positions.
However, it’s crucial to exercise caution when initiating a short position based on this bearish crossover. Ensure that the crossover occurs above the zero line for improved accuracy. Conversely, for long positions, wait for the MACD to cross below the zero line.
To seize the perfect opportunity, keep an eye out for these MACD setups not only on Bitcoin but also on other cryptocurrencies’ price charts. You might just discover a highly profitable trading position!
Setting Your Trade Over on BITFLEX
When you set your trade over on BITFLEX, you first need to deposit funds into your BITFLEX account. As a beginner, you should never risk money that you cannot easily afford to lose.
Next, move your desired amount of USDT from your spot account to your derivatives wallet by going to your assets and selecting “Transfer.” This step prepares your funds for trading.
Navigate to the derivatives tab and select the BTC/USDT trading pair. You’re now ready to analyze the market using MACD.
Watch for the MACD to exhibit a bullish crossover with the signal line, and ensure it’s below the zero line on the weekly time frame chart. This is a key signal to consider opening a trade.
Exercise patience and wait for a confirmation candle after you spot a bullish crossover. This helps filter out fake signals. Only enter your trade after the confirmation candle closes. When you see a bullish crossover and confirmation, you can set a market order. As a beginner, it’s recommended to open a market-long position.
One of the most critical aspects of trading, especially for beginners, is risk management. Never risk more than 10% of your trading portfolio on a single trade.
Assuming you’ve identified a strong MACD crossover below the zero line, it’s time to set your leverage, take profit, and stop loss. For swing trading, opt for lower leverage to reduce risk. Align your leverage with your stop loss, aiming for a minimum 2:1 reward-to-risk ratio. Ensure your stop loss doesn’t exceed a 20% loss.
Switch your leverage mode to isolated, as using cross leverage can risk your entire trading account if the trade turns negative. Place your take profit just below the next critical resistance level, especially on the weekly timeframe. Maintain a minimum 2:1 reward-to-risk ratio for this parameter.
Now, you’re ready to execute your trade. Choose between Market Order, Limit Order, or Conditional Order. As a beginner, a Market Order is often a safer choice, as it executes your trade at the current market price. Be cautious with Limit or Conditional Orders, as they may not trigger during periods of low liquidity or volume.
After setting and executing your trade, you can still adjust specific parameters as needed. Stay vigilant and stay informed as market conditions change.
With these steps, you’re on your way to using the MACD oscillator effectively for crypto trading. Remember, practice and continuous learning are your best allies in this exciting but volatile market. Good luck, and trade wisely!
Incorporating the MACD strategy into your trading can indeed prove advantageous, provided it’s executed correctly.
This strategy provides invaluable signals for optimal entry and exit points, enabling you to minimize potential losses. By following the guidelines outlined above, beginners can gain a solid understanding of this strategy and harness it to generate favorable profits.
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