A constant problem in technical analysis is false signals. Regardless of the techniques used, the tools can mislead investors by false signal. This is not necessarily an error but a wrong choice of sampled periods for analysis purposes.
In short, when you choose the wrong analysis time, there will always be more false signals.
MACD, short for moving average convergence/divergence, is a trading indicator used in technical analysis of stock prices, created by Gerald Appel in the late 1970s. It is designed to reveal changes in the strength, direction, momentum, and duration of a trend in a stock's price.
The MACD indicator is a collection of three time series calculated from historical price data, most often the closing price. These three series are: the MACD series proper, the "signal" or "average" series, and the "divergence" series which is the difference between the two. The MACD series is the difference between a "fast" (short period) exponential moving average (EMA), and a "slow" (longer period) EMA of the price series. The average series is an EMA of the MACD series itself.
The MACD indicator thus depends on three time parameters, namely the time constants of the three EMAs. The notation "MACD(a,b,c)" usually denotes the indicator where the MACD series is the difference of EMAs with characteristic times a and b, and the average series is an EMA of the MACD series with characteristic time c. These parameters are usually measured in days. The most commonly used values ??are 12, 26, and 9 days, that is, MACD(12,26,9). As true with most of the technical indicators, MACD also finds its period settings from the old days when technical analysis used to be mainly based on the daily charts. The reason was the lack of the modern trading platforms which show the changing prices every moment. As the working week used to be 6-days, the period settings of (12, 26, 9) represent 2 weeks, 1 month and one and a half week. Now when the trading weeks have only 5 days, possibilities of changing the period settings cannot be overruled. However, it is always better to stick to the period settings which are used by the majority of traders as the buying and selling decisions based on the standard settings further push the prices in that direction.
How a technical analysis tool that uses 2 exponential moving averages to: give buy and sell signals, show bullish divergence/bearish divergence and helps determine trend direction
Some traders will also include the histogram, which will cross the zero line when the EMAs cross in either direction.
In signal processing terms, the MACD series is a filtered measure of the derivative of the input (price) series with respect to time. (The derivative is called "velocity" in technical stock analysis.) MACD estimates the derivative as it was calculated and then filtered by the two low-pass filters in tandem, multiplied by a "gain" equal to the difference in their time constants . It can also be seen to approximate the derivative as if it were calculated and then filtered by a single low pass exponential filter (EMA) with time constant equal to the sum of time constants of the two filters, multiplied by the same gain. So, for the standard MACD filter time constants of 12 and 26 days, the MACD derivative estimate is filtered approximately by the equivalent of a low-pass EMA filter of 38 days. The time derivative estimate (per day) is the MACD value divided by 14.
The average series is also a derivative, with an additional low-pass filter in tandem for further smoothing (and additional lag). The difference between the MACD series and the average series (the divergence series) represents a measure of the second derivative of the price with respect to time ("acceleration" in technical stock analysis). This estimate has the additional lag of the signal filter and an additional gain factor equal to the signal filter constant.
Exponential moving averages highlight recent changes in a stock's price. By comparing EMAs of different lengths, the MACD series gauges changes in the trend of a stock. The difference between the MACD series and its average is claimed to reveal subtle shifts in the strength and direction of a stock's trend. It may be necessary to correlate the signals with the MACD to indicators like RSI power.
Some traders attribute special significance to the MACD line crossing the signal line, or the MACD line crossing the zero axis. Significance is also attributed to disagreements between the MACD line or the difference line and the stock price (specifically, higher highs or lower lows on the price series that are not matched in the indicator series).
In summary: MACD Indicator is used to determine the current trend, its strength and the probability of its reversal. It consists of the MACD line, a signal line and the bar graph.
The lines that overlap on the histogram are moving averages, the same as those used on the graph itself. One slow and one fast. Whose crossing indicates either an upward movement or a downward movement.
The strength of these movements depends on whether they occur under or on the histogram line.
The histogram itself also demonstrates the strength of trades, or trading volumes: if the bar rises from below the line to above the line, it is because there is buying movement. However, if the histogram line that is on top falls below the middle bar of the histogram, it means the asset's sales movement.
In fact, the MACD is able to graphically summarize what is happening in the asset, entry and exit moments, in addition to the strength in the trading volume.
If paired with RSI and Aaron, they can be a powerful loss-reducing resource!
Remembering that we are not offering certainties of realization of gains, just presenting another technical tool to work within the concept of volatility.
The study and adjustments of the MACD periods can provide more or less moments of entry and exit, in addition to reducing false signals.
Study and patience, combined with tools that are understood, become a powerful ally to have more success than defeat in this cryptoworld!
As a popular saying goes: "The best tool is the one you know how to use! And, to know the quality of the work, you don't need to see it work but, rather, check the status of your tool box and the whimsy to the details observed in the service done!"
In other words, the quality - or lack of it - depends on how much you want to study and how much you want to observe about the tools used!
Good business everyone!
