This article aims to explain how the Moving Average Convergence Divergence (MACD) Indicator works, how to set up the MACD strategy in Gunbot, and how to profit from using this trending indicator even if you're a manual trader.
This article was published first at CryptoDROI.com
The MACD strategy is a simple price momentum indicator that crosses a signal line to identify potential trend reversals. It attempts to catch the trend early while also allowing traders to exit their positions early should the trend reverse.
You can apply the MACD strategy to any asset pair. It does not require you to track volume levels, historical prices, or any other data outside what is already available in the market.
Get ready for success with the Ultimate Crypto Trading Bot when you use the MACD strategy. Let's begin!
MACD Indicator Explained
The MACD is an oscillator that tells you about the momentum of the market. It is one of the simplest and most effective indicators.
Developed by Gerald Appel in the late seventies, crypto traders can use this mathematical representation of assets movement to find opportunities for profitable trading.
The MACD uses the subtraction of two moving averages to predict changes in an asset's momentum. By considering both short- and long-term trends, the indicator provides you a combination of the best trend-following and momentum indicators.
That's why the MACD is one of the most popular in the crypto trading industry.
To understand the MACD, you have to know all about convergences and divergences. When the two moving averages start to converge, it means they’re coming closer together. Conversely, when they start to diverge, they’re getting farther apart.
In the world of MACD, signals can be bullish or bearish. A bullish crossover is when the Moving Average Convergence-Divergence turns up and crosses above the Signal Line.
Similarly, a bearish crossover is when the MACD turns down and crosses below the signal line. Crossovers can last a few days or a few weeks, depending on how strong the move is.
Even though the MACD is not the best indicator of oversold and overbought levels, you can still use it to identify them. There are overbought and oversold levels that will continue to exist even if the MACD continues to go off the charts.
It's important to remember that the MACD can continue beyond what has been historically deemed an oversold or overbought level during sharp moves.
By now, you should know that the acronym stands for Moving Average Convergence Divergence, and that is one of the most powerful and commonly used trend-following indicators because basically...
Helps you identify the direction of the market on both ways, either going up as a bull or down as a bear.
is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.
MACD triggers technical signals when it crosses above (to buy) or below (to sell) its signal line.
Here is an example of the MACD indicator from a TradingView chart pic
Once you set up the MADC strategy in Gunbot, you have to keep in mind that the buy order is placed when the MACD line crosses up the signal line, and a sell order is placed when the MACD line crosses down the signal line.
Meaning that you will have to set the "DOUBLE_CHECK_GAIN" setting to "true" because the bot will buy or sell on the cross without checking for profit unless you set it to do so.
Gunbot MACD Strategy Logic
Here's how to trade using the Gunbot MACD reasoning
The two moving averages on a chart react at different speeds. The one that moves faster will be the first to react to price movements.
In general, the slower one will have a higher crossover point. The quick line will react first and eventually cross the slower line when there's a new trend.
When this crossover takes place, and the fast-moving average line begins to diverge (move away from the slower line), it mainly means that a new up-trend has started.
On the other hand, a down-trend starts when the fast-moving average line moves towards the slow-moving line.
Gunbot will "BUY" when the MACD line crosses up the signal line and "SELL" when the MACD line crosses down the signal line.
A trending market is a perfect time to use the MACD indicator. However, it's not a good idea for an expert trader because this indicator is not accurate in a ranging market.
As a new trader, you can use the MACD to learn about how indicators work. Try watching markets live on a smaller time frame and assess how the MACD functions and moves with the market.
Gunbot MACD Strategy Settings
The first step you have to take is going to the "Strategy" tab in your Gunbot GUI and click on it, so a new window will pop up with the "Create New trading Strategy" title.
Give your new strategy a name and choose the preset Buy and Sell methods as MACD.
After that, hit the "Create" button so you can jump to the strategy settings and start adding your chosen values.
: You can edit any Gunbot strategy thru the GUI or editing your config.js file with a word editor like Notepad++
Gunbot MACD Strategy Buy Settings
When using the MACD strategy, the "BUY" settings are the primary trigger for your buy orders. These parameters tell the bot how to execute a buy order when your trading conditions are detected in the market.
BUY_ENABLED": true, this is the default setting on your config.js file or switched to "ON" in your GUI, as you can see on the screenshot.
BUY_METHOD": MACD, this is the default setting. Remember, you can set another "Buy Method" if you want to.
TAKE_BUY": false, if you set it to "true," can take any buying opportunity between your entry point and the TBUY_RANGE number you set. Still, Gunbot can take regular strategy buy conditions, and if you added the bot would respect a confirming indicator.
TBUY_RANGE": the value you set here will be a percentage of your choice. This setting will only appear if you activate "Take Buy."
SINGLE_BUY": false. Gunbot MACD will place a single buy order on the first cross-up and sell it afterward if you activate this setting.
": Never Buy Above. This setting ensures that Gunbot only makes buy orders when the price is below your last sell order. The number you set here will tell Gunbot the percentage above your last sell order you want it to buy again.
Gunbot MACD Strategy Sell Settings
When using the MACD strategy, the "SELL" settings are the primary trigger for your sell orders. These parameters tell the bot how to execute a sell order when your trading conditions are detected in the market.
SELL_ENABLED": true, this is the default setting on your config.js file or switched to "ON" in your GUI, as you can see on the screenshot.
SELL_METHOD": MACD, this is the default setting. Remember, you can set another "Sell Method" if you want to.
": The number you add here will represent the percentage of Gain you want Gunbot to sell. If the DOUBLE_CHECK_GAIN is enabled, this will be your minimum target for selling.
TAKE_PROFIT": Enabling this setting will allow you to sell above your break-even target.
TP_RANGE": A "Take Profit Range" parameter will be activated when you use Take Profit, and the number you use will be the percentage at which you want to sell above your break-even point.
DOUBLE_CHECK_GAIN": If you don't enable this setting, the strategy will buy or sell at the MACD cross without taking your Gain into account.
I strongly suggest you activate the Double Check Gain option.
Gunbot MACD Strategy Indicator Settings
It is best to add the MACD default values to your Gunbot strategy in the indicators section, as you can see on the screenshot.
MACD_SHORT": 12, the Gunbot default value is 5
MACD_LONG": 26, the Gunbot default value is 20
MACD_SIGNAL": 9, the Gunbot default value is 10
All other values are optional, and depending on your choices, you can edit to fit your trading needs. Read this Gunbot Strategy Setup Guide to learn more about it.
As a rule of thumb, always check the charts before firing the bot, just as you wouldn't enter the trade unless you see conditions met on the chart before entering the trade.
Also, make sure the market is trending either up or down, avoid ranging market since the MACD is good only when a good momentum exists.
I keep seeing crypto traders fighting against the markets, so please don't be one of them. At least try to understand how the market structure works
What to Check Before Entering a Trade
There are 3 main questions you can ask yourself to properly decide when and if you enter the market; the first is obvious.
Is there a structure to the market?
The second question should be. Is the pair ranging or trending?
And finally, Is it at the top or bottom of the trend?
After accurately answering these questions, you will start finding success with Gunbot and profiting from your trades.
The market trends in 3 different directions at any time; therefore, understanding when a switch occurs based on your choice's timeframe is crucial to successful crypto trading.
In general, the 3 basic forms of market structure are "Bull-TrendBear-TrendSideways-Trend
You can recognize a Bull Trend when you see Higher Highs and Higher Lows on the chart.
The bear trend can be seen when the price action shows a series of Lower Lows and Lower Highs.
And the sideways trend or ranging market is revealed when Equal Highs and Equal Lows are present on the chart.
Always double-check with a higher time frame (zoom-out), so you can see the direction from a better perspective and be sure the trend is what you expect.
You can also draw trendlines to check convergence or divergence between the price and the MACD indicator.
If you're not using the Gunbot MACD Strategy and you want to do it manually, you can write a trendline on the MACD indicator and enter the trade when the price breaks above that trendline, so not only do you rely on the cross, but on a breakout, this is a useful tip to filter out false signals.
You know how to set up the "Gunbot MACD strategy" and how to enter the trade manually, but never forget to Manage Your Risk
After all, it is only by managing your risk that you can succeed as a trader. For this, you can use Stop Loss, Dollar Cost Average, or Reversal Trading with Gunbot.
If you're trading manually, the best approach would be to Stop Loss with a proper risk/reward ratio. Provided you had a good entry price, your stop loss should be smaller.
For Gunbot, you must have set up a gain percentage, and in case you're manually trading, don't forget to take profit at the cross. Always remember that "the trend is your friend until the end."
The MACD is one of the most frequently used technical indicators in the cryptocurrency market. And for a good reason! It's relatively simple and easily incorporated into any short-term crypto trading strategy to provide you with successful opportunities.
Disclaimer: "This Is Not Trading Advice" is just my personal experience with the Gunbot MACD Strategy.
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