I've been in the cryptocurrency space for some years now. I started as a small investor with 50,000 yuan, navigating through the ups and downs of the market, and now I've achieved a level in the tens of millions. Today, I'd like to share my personal experience with everyone.
First, let's talk about capital management. Never throw all your money in at once. I prefer to operate in batches, so even if I incur losses, they won't be too severe. I've set a rule for myself: once my losses reach a certain level, I decisively withdraw, regardless of the market conditions. This way, even if I face consecutive losses, it won't be too damaging, but if I make profits, the returns can be quite substantial. Even if I'm stuck in a position, I can maintain my composure.
Going with the market trend is definitely correct. When the market is declining, don’t always think about bottom fishing; it’s unrealistic. A good opportunity arises when the market rises and adjusts; at that time, buying low is much safer than trying to catch the bottom.
Selecting coins requires vision; those cryptocurrencies that surge suddenly, whether mainstream or altcoins, must be approached with caution. Rapid increases often lead to equally rapid corrections, making it easy to get trapped.
In terms of technical indicators, I often use MACD. When the DIF line and DEA line cross below the zero axis and then break through the zero axis, it is a buying signal. If it crosses above the zero axis and then moves downward, it's time to reduce positions. Do not easily attempt averaging down. If you lose, do not average down; many people end up losing more and more until they have nothing left. Remember, stop losses for losses, and only add positions when profitable.
Trading volume is also crucial. If the price breaks out at a low level and the trading volume increases, it could be a significant opportunity.
The most critical thing is to go with the trend. Combine daily and monthly lines for a comprehensive judgment; when any line turns upward, you should have a clear idea of how to act.
In summary, trading cryptocurrencies carries risks and opportunities. I hope my experience can help everyone, but I must remind you to invest cautiously!
Without further ado, today I will summarize a set of MACD strategies to share with everyone!
1. MACD is the most commonly used indicator by experts.
The role of the MACD indicator in technical analysis is particularly special and can be said to be an essential part of learning technical analysis. Its importance can be summarized in at least the following points.
First, the MACD indicator is the most effective technical indicator verified by historical trends and is also the most widely used indicator.
Secondly, the MACD indicator is derived from the EMA moving average indicator and has a good application effect in grasping trending markets. Trend investors generally need to reference this indicator in practice.
Third, the peak and bottom divergence of the MACD indicator is recognized as the best method for 'bottom fishing and peak escaping', which is an important tool to materialize trend theory and wave theory.
Fourth, many veterans have this experience: when they first started learning the MACD indicator, they gradually abandoned it. After a long period of learning and comparison, especially after practical verification, they ultimately returned to using the MACD indicator again. This highlights the special nature of this indicator.
Fifth, the application of the MACD indicator in quantitative trading is also extremely widespread.
It is precisely because of these advantages that the MACD indicator has become the most commonly used technical indicator among professional traders.
2. The concept and algorithm of the MACD indicator.
The MACD indicator, also known as the Exponential Moving Average Convergence Divergence (MACD), was created by Gerald Appel to track price trends and analyze K line buy and sell timing. This indicator is a commonly used indicator in market software and is known as the 'king of indicators'. As shown in [Figure 1].
In the cryptocurrency market, the MACD indicator consists of the DIF fast line, DEA slow line, MACD bar line, and zero axis, referred to as 'three lines and one axis'. Investors analyze price movements through crossovers, divergences, breakthroughs, support, and resistance of these 'three lines and one axis'. The MACD indicator has become the preferred indicator in many market software, reflecting its wide applicability, which also indirectly demonstrates that this indicator is one of the most effective and practical indicators verified by history.
Three, MACD's golden cross and dead cross.
The 'golden cross' and 'dead cross' formations are extremely important shapes in technical indicator analysis. The golden cross formation, also known as the golden crossover, refers to a shorter period indicator line crossing upward and penetrating a longer period indicator line (of the same type), often indicating a short-term buying opportunity. If the golden cross formation appears after 1. a rapid short-term decline during a downward trend; 2. a rebound during an upward trend; 3. a consolidating trend during an upward trend, that is, when the golden cross formation appears at a low point, it serves as a more reliable buying signal.
The dead cross formation, also known as the death cross, refers to a shorter period indicator line crossing downward and penetrating a longer period indicator line (of the same type), often indicating a short-term selling opportunity. If the dead cross formation appears after 1. a consolidating trend during a decline; 2. a rebound upward during an upward trend; 3. a rapid upward movement during an upward trend, that is, when the dead cross formation appears at a peak, it is a more reliable selling signal.
Having understood the golden cross and dead cross formations, we can take a closer look at the golden cross and dead cross formations of the MACD indicator lines. The appearance of golden and dead crosses at different positions will reflect different market meanings.
Situation 1: Buy point of the low position golden cross.
If the position of the golden cross between the DIFF line and DEA line occurs below the zero axis and is far from the zero axis, this golden cross is referred to as a low position golden cross. Investors may view this golden cross merely as a short-term price rebound; whether the K line can form a real reversal still requires observation and confirmation using other indicators.
As shown in the figure above:
On August 27, 2019, in the BTC 10-minute K line chart, as the price corrected, a low position golden cross appeared, followed by a rebound of $200. Short-term investors can seize this opportunity to enter the market.
Situation 2: Buy point of the golden cross near the zero axis.
If an upward trend has formed, the golden cross between the DIFF line and DEA line occurring near the zero axis is often the best time for investors to buy.
This is because, after an upward trend forms, a golden cross near the zero axis indicates that the adjustment has completely ended, and a new upward trend has begun. If a golden cross of the volume line also accompanies this, it indicates that the price's rise is supported by trading volume, making the buying signal more reliable.
Once this buying point appears, investors should absolutely not miss it; otherwise, they will miss out on a significant upward trend.
As shown in the figure above:
On August 19, 2019, at 09:30, in the BTC 5-minute K line chart, Bitcoin broke through the 30-day moving average upwards, indicating that an upward trend has initially formed. For a period afterward, the price almost consistently operated above the 30-day moving average.
On August 19, 2019, at 14:00, the MACD indicator formed a golden cross near the zero axis, indicating that the market is about to experience a significant upward movement. Investors can decisively buy in.
Situation 3: Buy point of the high position golden cross.
If the golden cross of the DIFF line and DEA line occurs above the zero axis and is far from the zero axis, then it is called a high position golden cross. High position golden crosses usually appear during consolidation in the K line's upward process, indicating that the consolidation has ended, and the K line is about to continue the previous upward trend. Therefore, once a high position golden cross appears, it is a good signal for increasing positions.
In practice, when an upward trend is formed, after the K line rises slowly and continues for a long period, once the MACD indicator forms a high position golden cross, it often signals that the K line is about to accelerate upward.
Because of this, a high position golden cross can also be used for wave operations. Investors can utilize the MACD indicator to continuously target upward waves in an upward trend.
As shown in the figure above:
On June 25, 2019, in the BTC 3-hour K line chart, the price of Bitcoin rose again after consolidation during an upward trend, while the MACD indicator showed a high position golden cross. This indicates that the pullback has ended, and the price will continue the previous upward trend. Investors should pay attention to seize this opportunity to increase positions.
Situation 4: Sell point of the low position dead cross.
A low position dead cross refers to a dead cross occurring far below the zero axis. Such a low position dead cross often appears at the end of an upward rebound in a downward trend; therefore, it serves as a selling signal indicating the end of the rebound. At this time, investors without positions should stay observant, while those deeply trapped should consider selling first and then buying back after the price declines to reduce costs.
As shown in the figure above:
On July 14, 2019, in the LTC 3-hour K line chart, the MACD indicator of Litecoin showed a low position golden cross, and the price experienced a small rebound, followed by a rapid decline.
Subsequently, the MACD indicator appeared dead cross below the zero axis, after which the K line began a new round of downward movement. Spot investors can sell their positions at the dead cross point and then buy back to reduce their holding costs.
Situation 5: Sell point of the dead cross near the zero axis.
If the previous market direction has been a downward trend, the crossover of the DIFF line breaking below the DEA line near the zero axis is called a dead cross near the zero axis. It indicates that the market has accumulated considerable downward momentum near the zero axis; the appearance of a dead cross predicts the release of downward momentum in the market, and the K line will continue the original downward trend, serving as a selling signal.
As shown in the figure above:
On August 12, 2019, in the BTC 1-hour K line chart, the DIFF line of Bitcoin broke down below the DEA line near the zero axis, forming a dead cross. This indicates that downward momentum in the market is beginning to release, signaling a selling opportunity; investors should decisively sell their positions, or they will be deeply trapped.
Situation 6: Sell point of the high position dead cross.
The DIFF line breaks down below the DEA line far above the zero axis, forming a cross known as a high position dead cross. This type of death cross formation is sometimes accompanied by the MACD peak divergence. The performance is that the price continues to create new highs during the sustained upward movement, but the MACD indicators, DIF line and DEA line no longer continue to rise or push higher but instead diverge from the price's movement, gradually moving downward.
Above the zero axis, the DIF line crosses downward through the DEA line forming a downward crossing trend, which belongs to a death cross and is a relatively reliable selling signal.
As shown in the figure above:
On August 23, 2019, in the TRX 1-hour K line chart, after a wave of increase in the TRON coin, the price continued to create new highs, but the DIF line and DEA line no longer continued to rise, and a death cross formed, signaling a sell.
Fourth, the divergence of MACD and K line.
Divergence is a term used in physics to describe momentum; in technical analysis, it is a widely used analysis method with a high success rate. In a downward trend, when the price reaches a new low, but the indicator line does not reach a new low, it is called bottom divergence, indicating that upward momentum is accumulating, signaling a buying opportunity. In an upward trend, when the price reaches a new high, but the indicator line does not reach a new high, it is called peak divergence, indicating that downward momentum is accumulating, signaling a selling opportunity.
I. Bottom divergence.
(1) The bottom divergence of the MACD bar line and DIFF line.
The bottom divergence of the DIFF line and price refers to a situation where, in a downward trend, when the price reaches a new low, the DIFF line does not reach a new low. It indicates that during the downward process, the decline of the DIFF line is smaller than that of the price, and upward momentum is continuously accumulating in the market, suggesting that the price will stop declining with a high probability of an upward movement in the next period.
The MACD bar line is hidden behind the DIFF line and is divided into red and green. Its divergence with price is an important usage of the MACD indicator and is widely applied in practice. The bottom divergence of the MACD bar line and price refers to the situation where, when the price creates new lows, the MACD bar line does not create new lows. The upward momentum in the market is accumulating, and the price is about to stop declining with a high probability of an upward movement in the next period.
When a bottom divergence occurs, investors can grasp specific buying points in two ways.
(2) Specific buying timing.
The bottom divergence of the DIFF line, MACD bar line, and price is not a specific point in time but a formation that appears over a period. However, the specific buying point for investors is a specific point in time, indicating that the price is about to stop declining. Therefore, to grasp the specific buying timing, when the DIFF line, MACD bar line, and K line exhibit bottom divergence, investors must combine the bottom divergence with other technical analysis tools to specify the buying point.
First: Bar line color change or MACD's golden cross.
A change in the bar line color indicates that the upward momentum in the market has begun to dominate. It usually appears after 'bar line shortening'; although it may come a bit late, it is more reliable. Once a bottom divergence occurs, when the bar line successfully changes color or forms a golden cross, investors can buy in.
As shown in the figure above:
On August 26, 2019, in the 15-minute K line chart of Ethereum (ETH), the price of Ethereum created a new low in the downturn, but the MACD bar line did not create a new low, forming a bottom divergence shape between the bar line and price. It indicates that the upward momentum in the market begins to accumulate, and there is a high probability that the price will experience a wave of upward movement.
Immediately following the color change of the bar line, these two overlapping buying signals further increase the reliability of the upward signal; investors can enter the market when the bar line changes color.
Second: Combine with other technical analysis tools and K line reversal patterns.
Bottom divergence combined with K line reversal patterns, such as 'single needle probing the bottom' and 'three soldiers at the bottom', is a specific application of the principle of 'multiple indicators in conjunction'.
As shown in the figure above:
On August 26, 2016, in the BTC 30-minute K line chart, the price of Bitcoin reached a new low, but the MACD bar line did not create a new low, forming a bottom divergence shape between the bar line and price, indicating that the upward momentum in the market is continually enhancing.
Accompanied by the price's decline and stop, a buy signal is formed with 'MACD bar line and price bottom divergence + K line single needle probing the bottom'. Later, the price experienced a wave of upward movement.
II. Peak divergence.
(1) The peak divergence of the MACD bar line and DIFF line.
The peak divergence of the MACD bar line and K line refers to a situation where, in an upward trend, the price creates a new high, but the MACD bar line does not create a new high. It indicates that downward momentum in the market is accumulating, and the price may drop at any time.
The divergence of the DIFF line and the K line at a peak refers to a situation where, in an upward trend, when the price reaches a new high, the DIFF line does not reach a new high. It indicates that the downward momentum in the market is continuously accumulating, and there is a high probability that the price will experience a wave of downward movement next.
(2) Specific selling timing.
Similar to bottom divergence, in practice, based on the principle of combining multiple indicators, investors can use the following methods to make selling signals more specific.
First: Bar line color change or MACD's dead cross.
Once the peak divergence of the MACD bar line and K line forms, if the bar line suddenly shortens significantly, this indicates that the downward momentum in the market is beginning to release. Investors should pay attention to timely selling. A change in the MACD bar line color indicates that the downward momentum in the market has already taken precedence, usually appearing after the bar line is continuously shortened. If the bar line and K line exhibit peak divergence and then show a color change or MACD dead cross, investors should pay attention to exit in a timely manner.
As shown in the figure above:
On August 9, 2019, in the HT 1-hour K line chart, the price of Huobi reached a new high, but the MACD bar line did not create a new high, forming a peak divergence shape between the bar line and price. It indicates that the downward momentum in the market is beginning to accumulate, and the price may experience a wave of downward movement at any time.
Subsequently, the MACD bar line changed from red to green, issuing a selling signal of 'bar line and price peak divergence + bar line color change'. Investors should pay attention to exit the market in a timely manner.
Second: Combine with other technical analysis tools and K line reversal patterns.
Once the MACD bar line and price show a peak divergence, if other technical analysis tools also simultaneously signal a sell, the reliability of the market sell signal will greatly increase. Common selling signals include 'bar line and price peak divergence + K line reversal patterns'.
As shown in the figure above:
On July 20, 2019, in the ETH 3-hour K line chart, the price of Ethereum reached a new high, but the MACD bar line did not reach a new high, forming a peak divergence shape between the bar line and price. It indicates that the downward momentum in the market is continuously strengthening, and the price may experience a wave of downward movement.
Subsequently, the MACD bar line gradually shortened while the K line formed a bearish Evening Star pattern. Investors should pay attention to exit the market in a timely manner; afterward, the K line experienced a significant downward trend.
Appendix:
Evening Star: In the process of rising, a longer bullish candlestick appears first, followed by a shorter candlestick (either bullish or bearish), which people liken to a star; this forms the main part of the candlestick combination. The third candlestick is a longer bearish candlestick, which has penetrated deeply into the body of the first candlestick. The Evening Star signals a price peak and a retreat, with predictions of accuracy rates exceeding 80%.
Fifth, modification of MACD parameters.
The lag in response to price changes can sometimes lead to less than ideal buy and sell price points, which is a defect of the MACD indicator. One way to change this situation is to adjust the indicator parameters to make the MACD indicator respond more sensitively to trends, thereby allowing for more ideal buy and sell price points.
In commonly used market software, the default parameters of the MACD indicator are 12/26/9. Under such parameter settings, the MACD indicator often has a significant lag in response to price changes.
The lag of the MACD indicator can be resolved by adjusting parameters. Commonly used parameter combinations include 5/34/5, 5/10/30, etc. Investors can also try and explore more in practice.
Finally, I will share a set of insights accumulated over the past 10 years!
1. Allocate funds to limit risk. Divide the funds into 5 parts, using only 1/5 of the position each time. Set a stop loss at 10 points, and even if a single judgment is wrong, the loss will only account for 2% of the total funds; only after 5 consecutive mistakes will the loss reach 10%. If the judgment is correct, set a take profit of more than 10 points, fundamentally reducing the risk of being trapped.
2. Go with the trend to increase win rates. To further improve the win rate, the core is the word 'go with the trend'. In a downward trend, each rebound is often a trap for bullish sentiment; in an upward trend, each decline is often a golden opportunity for buying. Compared to the extremely high risk of bottom fishing, going against the trend to buy low has a much higher probability of making money.
3. Avoid short-term surging cryptocurrencies. Whether mainstream coins or altcoins, few can create multiple waves of main upward momentum. After a short-term surge, the difficulty of continuing to rise in price becomes very high. When high prices stagnate, the inability to pull up afterward will inevitably lead to a decline. This simple principle, yet some people still enter with a 'gamble' mindset, eventually getting trapped.
4. Use MACD to judge entry and exit signals. Use MACD to assist decision-making: when the DIF line and DEA form a golden cross below the zero axis, and break through the zero axis, it is a stable entry signal; when the MACD forms a dead cross above the zero axis and moves downward, it is necessary to decisively reduce positions to avoid profit reversal.
5. Refuse to average down on losses, only increase positions when profitable. 'Averaging down' has trapped countless retail investors— the more they lose, the more they average down, and the more they average down, the more they lose, ultimately pushing themselves into a desperate situation. Remember the iron rule: never average down when losing, only add positions when profitable, letting profits roll rather than letting losses expand.
6. Volume is the soul, closely follow the capital trends. Trading volume is the 'weather vane' of capital in the cryptocurrency market, which is more reliable than simply looking at K lines. When the price breaks out while consolidating at a low level, it should be given special attention; when there is a volume increase at a high level, indicating weak capital support, one should decisively exit the market.
7. Only engage in upward trends, do not waste time. Prioritize choosing cryptocurrencies that are in an upward trend, which have higher odds and better efficiency. A 3-day line turning upward is a short-term upward signal; a 30-day line turning upward corresponds to a medium-term upward move; a 84-day line turning upward indicates a high probability of a main upward wave; a 120-day moving average turning upward indicates a long-term upward trend.
8. Persist in reviewing and adjusting strategies in a timely manner. After each day's trading, a review must be conducted: check if the holding logic has changed, verify if the trend aligns with expectations through weekly candlesticks, and assess if the trend direction has shifted. Adjust trading strategies based on the review results to continuously optimize operations and avoid repeated pitfalls.
The above are some of Yan An's thoughts and insights. If you find them helpful, please like and save them. I am Yan An, a person who has experienced three rounds of bull and bear markets, skilled in logical coin selection and technical timing, engaging only in trades within my cognitive range. Every direction has been validated by the market!
Even the most diligent fisherman will not go out to sea to fish during a stormy season, but will carefully guard his fishing boat instead. This season will eventually pass, and sunny days will come! Pay attention to Yan An, who teaches you both how to fish and the fishing itself; the doors of the cryptocurrency world are always open. Going with the trend is the key to a life led by the trend; collect this wisdom and keep it in mind!
