Join Xiao K in deciphering the high success rate strategy of MACD

1. Introduction to MACD Indicator
1. Concept Definition: MACD (Moving Average Convergence Divergence) explains the relationship between two moving averages, namely the fast line and the slow line. Essentially, the MACD indicator is used to determine and speculate on changes or continuations in price trends.
2. How to Activate the MACD Indicator? Open the indicator library, search for the MACD indicator, and select it. The MACD indicator will then appear below.


3. Blue Line and Orange Line: The green line (DIF, fast line) is the difference between the short-term (12-period) EMA and the long-term (26-period) EMA, also known as the “fast line”. It reflects market changes over a shorter time span, making it more sensitive than the slow line. The orange line (DEA, slow line) is the 9-period EMA of DIF, also known as the “slow line”. It is a smooth line calculated from DIF, reflecting market changes over a longer time span, making it smoother and slightly lagging compared to the fast line. The MACD histogram displays the difference between DIF and DEA. Based on these three elements, we can determine market trends and momentum changes.


2. MACD Golden Cross and Death Cross Trading Strategy
When the price is in a downtrend, a golden cross occurs when the fast line crosses above the slow line. This indicates a transition from a downtrend to an uptrend, presenting a long trading opportunity. When the price is in an uptrend, a death cross occurs when the fast line crosses below the slow line. This indicates a transition from an uptrend to a downtrend, providing a reasonable entry point for short selling. This is the traditional usage of MACD.
3. MACD Divergence Trading Strategy
1. MACD Bearish Divergence: When the high point of the price is higher than the previous high, it is known as a double top. Ideally, MACD should also form a double top to correspond to the trend momentum of the price. However, in this case, MACD forms a double bottom instead, indicating a weakening in the trend momentum of the price. If the second high point is higher than the first, it is a double top. When the price forms a double top but MACD forms a double bottom, it is a bearish divergence. If we observe the price forming a double top but MACD forming a double bottom, it is a bearish divergence. The probability of the price trend reversing downwards is high. We need to identify key price levels + MACD trend reversal divergence to confirm the trend.
2. MACD Bullish Divergence: When the low point of the price is lower than the previous low, it is known as a double bottom. However, MACD forms a double top in this case, indicating the intervention of buying momentum and a gradual weakening of the downward price momentum. When the price forms a double bottom and MACD forms a double top, it is a bullish divergence. When a bullish divergence forms, it indicates a high probability of the trend changing to an uptrend, providing a reasonable buying opportunity.
3. MACD Trend Reversal Trading Strategy: Key price levels + MACD trend reversal divergence. We need to find two consecutive peaks connected by a line and find the corresponding two peaks of the MACD at the bottom. In the first step, we need to identify the key support level. We can observe multiple tests of this support level by the price, followed by a significant upward movement. Therefore, this is the key support level. When the price returns to this key support level, we can look for a trading signal to go long. For example, if we find a mountain peak that has gone through a round of ups and downs and returned to the support level. However, please note that we cannot go long yet. Because we need one more signal to confirm the validity of this bullish divergence, we can draw a downtrend line and observe a descending wedge triangle, which is a bullish chart pattern. When the price breaks through the descending wedge triangle, we can enter a long position. If these two conditions are met, breaking through the downtrend line, we can consider going long. Alternatively, we can draw a line at the previous high before the downtrend. When the price breaks above this high, it indicates a trend reversal. The price is highly likely to change from a downtrend to an uptrend, and we can enter a long position after the price breaks the previous high. In summary: key price levels + MACD trend reversal divergence.
4. How to Find Support Levels? Support levels can be understood as multiple retracement points forming valleys or peaks, where there are multiple retests at the foot of the mountain. It can be a small range of prices or a specific point. As we just discussed, MACD divergence + key price level, the key price level represents whether this support level has been broken or not.


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