In 2017, with a try-and-see attitude, I bought my first Bitcoin with 1,000 yuan. At that time, Bitcoin prices were still hovering around a few thousand yuan; I didn't expect it to rise much. However, in just a few months, Bitcoin prices soared, and my 1,000 yuan turned into tens of thousands.
Having tasted success, I began to delve into blockchain and digital currency, gradually investing in mainstream currencies such as Ethereum and Litecoin. I learned how to read candlestick charts, analyze market trends, and even participated in some early project private placements.
In 2018, the cryptocurrency circle experienced a major bull market, and my assets also soared. I seized the opportunity, decisively took action, liquidated part of my digital currency, and bought my first apartment in the city center.
Of course, the cryptocurrency circle is not without its difficulties. The bear market of 2019 caused me significant losses, but I did not give up; instead, I chose to continue learning and accumulating knowledge. I firmly believe that blockchain technology is the future trend, and the value of digital currencies will ultimately return.
In 2020, the rise of DeFi (Decentralized Finance) reignited enthusiasm in the cryptocurrency space. I keenly captured this trend and actively participated in liquidity mining and staking, receiving substantial rewards.
Today, I have achieved financial freedom, but I still maintain my love for and exploration of blockchain technology. I am well aware that the cryptocurrency space is full of opportunities but also hides risks. Only by continuously learning and maintaining rationality can one navigate the turbulent seas of cryptocurrency.
My experience sharing:
Learning is foundational: Understanding blockchain technology, the principles of digital currency, and market trends are prerequisites for investment.
Rational Investment: Do not blindly follow the crowd; invest based on your own risk tolerance.
Diversified Investment: Do not bet all your funds on one project. Diversification can reduce risk.
Long-term holding: The cryptocurrency market is highly volatile, and long-term holding of quality assets is more likely to yield substantial returns.
Stay Calm: Do not be swayed by market emotions; a calm mind is essential for making correct decisions.
The stories of becoming rich in the cryptocurrency circle are certainly enviable, but the risks and costs behind them cannot be ignored.
I. MACD is the most commonly used indicator by experts.
The MACD indicator plays a particularly special role in technical analysis and can be considered an essential part of learning technical analysis. Its importance can be summarized in several points.
First, the MACD indicator is one of the most effective technical indicators tested by historical trends and is also one of the most widely used indicators.
Secondly, the MACD indicator is derived from the EMA moving average indicator and has a good application effect in capturing trending markets. Trend investors basically refer to this indicator in practice.
Thirdly, the top and bottom divergence of the MACD indicator is recognized as one of the best methods for 'bottom-fishing and top-selling', which is an important tool for concretizing trend theory and wave theory.
Fourthly, many veterans have had this experience: starting to learn the MACD indicator when they first enter the field, then gradually discarding it, only to return to the MACD indicator after a long period of learning and comparison, especially after practical verification. This illustrates the uniqueness of this indicator.
Fifth, the MACD indicator is also widely used in quantitative trading.
It is precisely because of these advantages that the MACD indicator has become the most commonly used technical indicator among professional traders.
II. Concept and Calculation of the MACD Indicator.
The MACD indicator, also known as the Exponential Moving Average Convergence Divergence indicator, was created by Gerald Appel and is used to track price trends and analyze candlestick buying and selling opportunities in technical analysis. This indicator is commonly used in market software and is known as the 'King of Indicators'. As shown in [Figure 1].
The MACD indicator in the cryptocurrency circle consists of the DIF fast line, DEA slow line, MACD histogram, and the zero line, referred to as 'three lines and one axis'. Investors use the intersections, divergences, breakouts, supports, and resistances of these 'three lines and one axis' to analyze prices. The MACD indicator has become a preferred indicator in many market software, indicating its wide application; it also indirectly shows that this indicator is one of the most effective and practical indicators tested by history.
III. Golden Cross and Death Cross of MACD.
The 'Golden Cross' and 'Death Cross' patterns are extremely important in technical indicator analysis. The golden cross is when a shorter-term indicator line crosses above a longer-term indicator line (of the same type), often indicating a short-term buying opportunity. If the golden cross appears after 1. a quick short-term decline during a downtrend; 2. a pullback during an uptrend; or 3. a consolidation during an uptrend, especially when it occurs at a temporary low, it is considered a more reliable buy signal.
The death cross pattern can also be referred to as a death cross, which occurs when a shorter-term indicator line crosses below a longer-term indicator line (of the same type), often indicating a short-term selling opportunity. If the death cross pattern appears after 1. a consolidation during a downtrend; 2. a rebound during an uptrend; or 3. a short-term rapid rise during an uptrend, especially when the death cross pattern occurs at a temporary high, it is considered a more reliable sell signal.
After understanding the golden cross and death cross patterns, we can specifically examine the golden cross and death cross patterns of the MACD indicator lines. The appearance of golden and death crosses in different positions reflects different market meanings.
Situation One: Buy Point of Low-Level Golden Cross.
If the positions of the DIFF line and the DEA line golden cross occur below the zero line and are far from the zero line, this golden cross is referred to as a low-level golden cross. Investors can regard this golden cross merely as a short-term price rebound; whether the candlestick can form a real reversal still needs to be observed and confirmed in conjunction with other indicators.
As shown in the image above:
On August 27, 2019, the BTC 10-minute candlestick chart showed a low-level golden cross as the price retraced, followed by a rebound of $200. Short-term investors can seize the opportunity to enter the market.
Situation Two: Buy Point Near Zero Line Golden Cross.
If an upward trend has formed, and the golden cross between the DIFF line and the DEA line occurs near the zero line, then this is often an excellent buying opportunity for investors.
This is because once an uptrend is established, a golden cross near the zero line indicates that the adjustment has completely ended, and a new round of upward movement has begun. If this is accompanied by a golden cross of the volume line, it indicates that the price increase is supported by trading volume, making the buy signal more reliable.
Once this buy point appears, investors should absolutely not miss it; otherwise, they will miss a major rally.
As shown in the image above:
On August 19, 2019, at 09:30, the BTC 5-minute candlestick chart showed Bitcoin breaking above the 30-day moving average, indicating that an upward trend has preliminarily formed. For a period afterward, the price almost constantly remained above the 30-day moving average.
On August 19, 2019, at 14:00, the MACD indicator formed a golden cross near the zero line, indicating that the market is about to see a significant upward movement. Investors can decisively buy.
Situation Three: Buy Point of High-Level Golden Cross.
If the golden cross between the DIFF line and the DEA line occurs above the zero line and is far from the zero line, this golden cross is referred to as a high-level golden cross. High-level golden crosses generally appear during the consolidation phase of an upward movement, indicating the end of consolidation and that the candlestick is about to continue the previous upward trend. Therefore, once a high-level golden cross appears, it is a good signal to increase positions.
In practice, when an upward trend is formed, and the candlestick rises slowly and lasts for a long time, once the MACD indicator forms a high-level golden cross, it often signals that the candlestick is about to accelerate upward.
For this reason, high-level golden crosses can also be used for swing trading. Investors can use the MACD indicator to continuously target upward swings in an upward trend.
As shown in the image above:
On June 25, 2019, the BTC 3-hour candlestick chart showed that Bitcoin prices were rising after a period of consolidation, and the MACD indicator displayed a high-level golden cross. This indicates that the pullback has ended and prices will continue the previous upward trend. Investors should pay attention to seizing this opportunity to increase positions.
Situation Four: Sell Point of Low-Level Death Cross.
A low-level death cross refers to a death cross that occurs far below the zero line. This type of low-level death cross often appears at the end of a rebound during a downtrend, signaling the end of the rebound. At this point, investors who are not in the market should watch cautiously, while those deeply trapped in positions can sell first and buy back later after prices decline to reduce costs.
As shown in the image above:
On July 14, 2019, the LTC 3-hour candlestick chart showed that the MACD indicator formed a low-level golden cross, leading to a small rebound in price before quickly dropping.
Immediately after, the MACD indicator showed a death cross below the zero line, and then the candlestick began a new round of downward movement. Spot investors can sell their positions at the death cross and then buy back to reduce holding costs.
Situation Five: Sell Point Near Zero Line Death Cross.
If the previous market direction has been a downtrend, a cross occurring near the zero line when the DIFF line breaks below the DEA line is called a death cross near the zero line, indicating that the market has accumulated considerable downward momentum near the zero line. The appearance of a death cross signals the beginning of the release of downward momentum in the market, and the candlestick will continue the original downtrend, serving as a sell signal.
As shown in the image above:
On August 12, 2019, the BTC 1-hour candlestick chart showed that Bitcoin's DIF line broke below the DEA line near the zero line, forming a death cross. This indicates that the market's downward momentum is beginning to release, signaling a sell opportunity, and investors should decisively sell their positions; otherwise, they will be deeply trapped.
Situation Six: Sell Point of High-Level Death Cross.
The cross that occurs far above the zero line when the DIFF line breaks below the DEA line is referred to as a high-level death cross. This type of death cross pattern is sometimes accompanied by a bearish divergence in the MACD. The manifestation is that while the price continues to reach new highs during the upward movement, the MACD's DIF line and DEA line do not continue to rise or push higher but instead diverge downwards from the price trend.
Above the zero line, when the DIF line crosses below the DEA line, forming a downward crossing trend, it is known as a death cross, which serves as a relatively reliable sell signal.
As shown in the image above:
On August 23, 2019, the TRX 1-hour candlestick chart showed that after a previous upward wave, the price continued to reach new highs, but the DIF line and DEA line no longer continued to rise, forming a death cross and issuing a sell signal.
IV. Divergence Between MACD and Candlesticks.
Divergence is a term in physics that describes momentum; in technical analysis, it is a widely used analytical method with a high success rate. In a downtrend, when prices reach new lows but the indicator line does not, it is called a bullish divergence, indicating that upward momentum is accumulating, which is a buy signal. In an uptrend, when prices reach new highs but the indicator line does not, it is called a bearish divergence, indicating that downward momentum is accumulating, which is a sell signal.
I. Bullish Divergence.
(1) MACD histogram and DIFF line bullish divergence.
The bullish divergence between the DIFF line and the price indicates that during a downtrend, when prices reach new lows, the DIFF line does not reach new lows. This suggests that the decline in the DIFF line is less than that of the price, indicating that upward momentum is accumulating, and prices are about to stop falling, with a high probability of rising in the near future.
The MACD histogram is the hidden MACD histogram behind the DIF line and is divided into red and green. Its divergence from price is an important application of the MACD indicator, widely used in practice. The bullish divergence between the MACD histogram and price indicates that when prices reach new lows in waves, the MACD histogram does not follow suit. This suggests that upward momentum is accumulating, and prices are about to stop falling, with a high probability of rising in the near future.
When a bullish divergence appears, investors can grasp specific buying points in two ways.
(2) Specific buying timing.
The bullish divergence between the DIFF line, MACD histogram, and price is not a specific point in time but a pattern that occurs over a period. However, when investors buy in, it is a specific point in time, indicating that prices are about to stop falling. Therefore, to grasp the specific buying opportunities, when the DIFF line, MACD histogram, and candlestick show a bullish divergence, investors must combine the bullish divergence with other technical analysis tools to specify the buying points.
First: Histogram color change or MACD golden cross.
Histogram color change indicates that the market's upward momentum has begun to dominate. This generally appears after 'histogram shortening', and although it may be a bit late, it is more reliable. When a bullish divergence appears, the histogram successfully changes color or forms a golden cross, allowing investors to buy.
As shown in the image above:
On August 26, 2019, the Ethereum (ETH) 15-minute candlestick chart showed that Ethereum's price set a new low during a decline, but the MACD histogram did not reach a new low, forming a bullish divergence between the histogram and price. This indicates that upward momentum in the market is beginning to accumulate, and there is a high probability of a price increase in the future.
Immediately after, the histogram changes color; these two sequential buy signals combined increase the reliability of the upward signal, allowing investors to enter when the histogram changes color.
Second: Combine with other technical analysis tools and candlestick reversal patterns.
Bullish divergence combined with candlestick reversal patterns, such as 'Single Needle at Bottom' and 'Three Soldiers at Bottom', is a specific application of the 'Multi-Indicator Combination' principle.
As shown in the image above:
On August 26, 2016, the BTC 30-minute candlestick chart showed that Bitcoin prices reached a new low, but the MACD histogram did not create a new low, forming a bullish divergence between the histogram and the price, indicating a continuous increase in market upward momentum.
Accompanied by the price's downward probing and bottoming out, a buy signal is formed with 'MACD histogram and price bullish divergence + candlestick single needle at bottom'. Subsequently, the price experiences an upward movement.
II. Top Divergence.
(1) MACD histogram and DIFF line bearish divergence.
The bearish divergence between the MACD histogram and the candlestick indicates that in an uptrend, when prices set new highs, the MACD histogram does not reach new highs. This implies that the downward momentum in the market is accumulating, and prices may drop at any time.
The bearish divergence between the DIFF line and the candlestick indicates that during an uptrend, when prices reach new highs, the DIFF line does not reach new highs. This suggests that the market's downward momentum is continuously accumulating, and there is a high possibility of a downward movement in prices.
(2) Specific sell timing.
Similar to bullish divergence, in practice, based on the principle of multi-indicator combination, investors can use several methods to make sell signals more specific.
First: Histogram color change or MACD death cross.
After the formation of the bearish divergence between the MACD histogram and the candlestick, if the histogram suddenly shortens significantly, it indicates that the market's downward momentum is beginning to release. Investors should pay attention to timely selling. The histogram color change indicates that the market's downward momentum has gained an advantage; this generally appears after the histogram has been continuously shrinking. If, after the histogram and candlestick bearish divergence, a histogram color change or MACD death cross occurs, investors should pay attention and exit in time. As shown in the image above:
On August 9, 2019, the HT 1-hour candlestick chart showed that Huobi's price reached a new high, but the MACD histogram did not reach a new high, forming a bearish divergence between the histogram and the price, indicating that the downward momentum in the market is beginning to accumulate, and prices may see a downward movement at any time.
Subsequently, the MACD histogram changed from red to green, issuing a sell signal of 'histogram and price bearish divergence + histogram color change'. Investors should pay attention and exit in time.
Second: Combine with other technical analysis tools and candlestick reversal patterns.
After the bearish divergence between the MACD histogram and price appears, if other technical analysis tools also show sell signals simultaneously, the reliability of the market sell signal will greatly increase, and at this point, investors should pay attention to exit decisively. Common sell signals of this type include 'histogram and price bearish divergence + candlestick reversal pattern', etc.
As shown in the image above:
On July 20, 2019, the ETH 3-hour candlestick chart showed that Ethereum's price reached a new high, but the MACD histogram did not reach a new high, forming a bearish divergence between the histogram and the price, indicating that the downward momentum in the market is continuously increasing, and prices may see a downward movement.
Subsequently, the MACD histogram gradually shortened while the candlestick formed a bearish Evening Star pattern. Investors should pay attention to exit in time, as a significant downward trend in the candlestick followed.
Attached:
Evening Star: In the process of rising prices, a long bullish candlestick appears first, followed by a shorter candlestick (either bullish or bearish) the next day, which is likened to a star, forming the main part of the candlestick combination. The third candlestick is a long bearish candlestick, which has deeply penetrated the body of the first candlestick. The Evening Star is a signal indicating a price peak and subsequent decline, with an accuracy prediction of over 80%.
(Regarding some candlestick patterns at market tops and bottoms. We will have a few special courses to delve into this later; welcome everyone to continue following.)
V. Modification of MACD Parameters.
The lag in response to price changes sometimes leads to less than ideal buy and sell prices, which is a defect of the MACD indicator. One way to change this situation is by adjusting the indicator parameters, making the MACD indicator more sensitive to price movements, thus allowing for more ideal buy and sell points.
In commonly used market software, the default parameters for the MACD indicator are set at 12/26/9. Under these parameter settings, the MACD indicator often shows a significant lag in response to price changes.
The lagging nature of the MACD indicator can be addressed by adjusting parameters. Common parameter combinations include 5/34/5, 5/10/30, etc. Investors can also experiment and explore more in practice.
I wrote an article on the mindset of trading cryptocurrencies, hoping to become your lighthouse on the cryptocurrency trading path in 2025, so you will never lose your way!
Let’s summarize a few reasons for losing money; only by knowing why you lost money can you understand where you can make money.
1. Not cutting losses, turning short-term trades into mid-term, and mid-term into long-term.
As a long-time investment practitioner, we are often asked, 'What is the most common mistake investors make in the investment market?' My answer is the lack of immediate and swift stop-losses. In a bidirectional investment market, profits and losses are magnified due to leverage. Failing to cut losses in time often leads to extremely serious consequences. The cryptocurrency trading market is no different; we all know that our most valuable asset is our investment capital, which is like ammunition on the battlefield; without it, failure is inevitable. We must always pay attention to protecting our capital and not let losses expand infinitely. Many people hope, pray, and dream of finding a perfect trading method that guarantees profits without stop-losses. In short, no such perfect money-making method exists in any field. Successful trading methods, like successful living, are not achieved by avoiding losses but are determined by controlling the quality of losses.
Changing time frames is also a common mistake made by inexperienced traders in the cryptocurrency market. The so-called change in time frame is a disguised form of not cutting losses and not admitting mistakes. It happens like this: a trader buys a contract aiming for good short-term returns, but the market trend does not produce the desired effect. This investor does not sell within the short-term time frame but decides to hold the contract and switch to mid-term or long-term investment. This is merely a reason not to cut losses; this method of changing time frames will inevitably lead to disaster, and stop-losses are the only way to prevent disaster from occurring.
2. Not paying attention to capital management and not controlling position sizes.
We use our hard-earned money to participate in cryptocurrency trading, which is fundamentally no different from investing in a convenience store near your home. If the small owner of the convenience store came to you asking for some investment for his little shop, how would you consider whether to invest or not? How much would you invest? Would you decide impulsively like you do in cryptocurrency trading? Capital management is precisely about resolving whether or not to invest and how much to invest.
The suggestion for beginners is to divide their capital into six parts, investing only one part at a time. As one's experience gradually increases and investment accuracy improves, one can slowly increase their position size, but at no time should a single investment exceed fifty percent of total capital. Otherwise, once a mistake is made, it becomes very difficult to recover. For example, if you have 100,000 yuan and lose fifty percent in one go, you are left with 50,000 yuan. To make back to 100,000 yuan from 50,000 yuan, you would need to earn one hundred percent. Anyone with a basic understanding of mathematics knows that achieving one hundred percent is much longer than achieving fifty percent.
A survey once conducted in the US capital management sector found that what matters most for a fund to achieve long-term winning is not when and at what price to enter the market, but how much the fund has invested. This is what is often referred to in the investment community as capital management. If one does not pay attention to capital management methods in cryptocurrency trading, they will definitely not reap the ultimate rewards.
Summary of personal experience:
1. Plan your capital reasonably for cryptocurrency trading; ensure you have food in hand and remain calm in heart!
2. Do not trade emotionally; do not be blinded by profit and place orders blindly.
3. Develop a good trading plan and follow the market.
Use large positions for trends and small positions for swings; control the ratio yourself. Trade lightly against the trend with stop-losses, and require strict adherence when trading with the trend.
From tens of thousands to tens of millions! The following three points must be mastered.
Continuing to talk: By focusing on these three points in the cryptocurrency circle, it will be difficult for you to lose money in the future!
First point: Do not look at market comments after placing an order.
There are always two voices in the market, one telling you that the market will fall, and the other telling you that it will rise. There will never be a day when the market has a unified bullish or bearish outlook. If that were the case, there would only be one type of person in the market, either all making money or all losing money, which does not conform to market laws. Therefore, after placing an order, do not think about how others in the market comment on future price movements, as such divergent opinions will shake your basis for placing orders, leaving you unsure whether to hold your position or exit early. Perhaps seeing opinions that align with yours will give you confidence, leading you to believe you will make a lot of money, but when opinions diverge, you may feel particularly anxious, risking making incorrect judgments and decisions under such tension!
Real investors, once they capture a trading signal, do not care about market changes; they strictly follow their trading plans to complete the transaction!
Second point: Do not place orders without stop-losses after incurring losses and then locking positions.
Everyone knows that investing carries risks, and there is no 100% guarantee. Therefore, when placing an order, one must establish strict stop-losses. Cutting losses requires a lot of courage; many people refuse to admit defeat, believing their direction is correct. Admitting defeat would directly result in significant financial losses. However, the market will never show you any sympathy. After making a wrong decision, you should immediately protect your principal. What is even more troublesome is the locked positions; many people have this experience, locking in losses, then unlocking and locking again, fearing that if they sell short, prices may drop further, making it hard to recover, or if they sell long, prices may rise continuously. Locking positions is not just about financial loss, but also immense psychological pressure and pain.
Third point: Do not easily add positions after placing an order.
Many people like to keep adding to their positions, charging ahead. When the direction reverses, remember not to add to your position; wait for the next opportunity to build positions. If you keep adding to your position, then your stop-loss will inevitably move, and moving the stop-loss will only lead to greater losses in your position. Some might say that after the stop-loss was hit, the currency's trend went in their direction, but then it requires everyone to patiently wait for the entry point. Generally, having such a stop-loss feels very unfair and irritating. But have you ever thought that such stop-losses usually indicate that the entry point was not well grasped or that the stop-loss was set improperly? Of course, if your trading plan is very thorough, appropriate position increases are feasible, but when you find that your trading plan has gone wrong, you must strictly stop-loss and exit.
Successful investors do not rely on luck; only by respecting the market, fearing the market, adapting to the market, and strictly adhering to trading discipline can they survive. When trading, do not be one-sided. We must firmly grasp the opportunity to lose less and win more, abandoning the mindset of gain and loss in order to remain undefeated in the market.
A thousand words are not as good as a profitable trade. Repeated battles are not as good as a determined effort! Frequent operations are not as good as precision in each trade; make every trade valuable. What you need to do is find me, and what I need to do is prove that my words are not empty. May our acquaintance begin with words, unite in character, become entangled in skills, last long in kindness, and ultimately be based on character.
