In cryptocurrency trading, technical indicators are important tools for analyzing price trends and trading opportunities. The following are methods for analyzing the three core indicators: EMA, MACD, and RSI, combined with practical cases and precautions to help you formulate more effective trading strategies.
One, EMA (Exponential Moving Average)
1. Core principles
EMA gives more weight to recent prices, making it more sensitive than simple moving averages (SMA) and suitable for capturing trend changes. Commonly used periods include 20-day, 50-day, and 200-day, corresponding to short-term, medium-term, and long-term trends.
2. Practical application
- Golden cross/death cross signals
- Buy signal: Short-term EMA (such as 20-day) crosses above long-term EMA (such as 50-day), indicating a strengthening trend.
Case: When Bitcoin's price broke above the 50-day EMA and stabilized in early 2023, it initiated a rally.
- Sell signal: Short-term EMA crosses below long-term EMA, indicating a potential trend reversal.
- Support and resistance
- When the price pulls back to near EMA (such as 20-day), if it finds support, it can be viewed as a buying opportunity; conversely, if the rebound is blocked, it may be a sell signal.
3. Precautions
- High applicability in unidirectional markets: EMA performs best when the trend is clear; in volatile markets, it may frequently issue false signals.
- Combined with trading volume: If a breakout occurs with increased trading volume when crossing EMA, the signal is more reliable.
Two, MACD (Moving Average Convergence Divergence)
1. Core principles
MACD consists of three parts:
- Fast line (MACD line): 12-day EMA - 26-day EMA
- Slow line (signal line): The 9-day EMA of the MACD line
- Bar chart: The difference between the fast line and the slow line reflects the strength of momentum.
2. Practical application
- Golden cross/death cross
- Golden cross: MACD line crosses above the signal line, indicating a buy signal.
- Death cross: MACD line crosses below the signal line, indicating a sell signal.
- Divergence analysis
- Top divergence: Price makes a new high, but MACD does not → Potential downside risk.
Case: In April 2021, when Bitcoin reached an all-time high, MACD showed a top divergence, and the price subsequently corrected more than 50%.
- Bottom divergence: Price makes a new low, but MACD does not → may indicate a bottom reversal.
- Zero axis boundary
- The MACD line above the zero axis indicates a bull market, and below indicates a bear market.
3. Precautions
- Lagging nature: MACD is based on EMA and needs to be combined with other indicators (such as RSI) for early warning.
- Momentum confirmation: Enlarged histogram indicates trend acceleration; reduced volume may indicate a reversal.
Three, RSI (Relative Strength Index)
1. Core principles
RSI measures the momentum of price increases and decreases, ranging from 0 to 100.
- Overbought area: RSI ≥ 70 (can be relaxed to 80 for cryptocurrencies)
- Oversold area: RSI ≤ 30 (can be adjusted to 20 for cryptocurrencies)
2. Practical application
- Overbought/Oversold signals
- RSI recovers to above 30 after entering the oversold area → Buy opportunity.
- RSI falls back to below 70 after entering the overbought area → Sell signal.
- Divergence analysis
- Bullish divergence: Price makes a new low, but RSI does not → Potential for reversal.
- Bearish divergence: Price makes a new high, but RSI does not → Reversal risk.
- Trend line breakout
- Draw trend lines in the RSI chart; breakouts may indicate a price reversal.
3. Precautions
- More effective in volatile markets: RSI may stay in overbought/oversold areas for a long time during trending markets and should be filtered with trend indicators (such as EMA).
- Parameter adjustment: Cryptocurrencies have high volatility; shortening the period from 14 days to 10 days can improve sensitivity.
Four, Comprehensive Strategies and Risk Control
1. Indicator combinations
- Trend + Momentum + Overbought/Oversold
- Bullish case: EMA golden cross (trend) + MACD golden cross (momentum) + RSI recovering from the oversold area → Buy.
- Bearish case: EMA death cross + MACD death cross + RSI overbought → Sell or short.
2. Characteristics of cryptocurrencies
- High volatility: Short-term EMA (such as 10-day) and MACD (6,13,1) parameters can be shortened to adapt to rapid changes.
- 24/7 market: Pay attention to unusual fluctuations during low liquidity at night or on weekends.
3. Risk avoidance
- Stop-loss settings: Set stop-loss below EMA support or previous low after buying; set above EMA resistance when selling.
- Avoid excessive trading: When indicators conflict (e.g., EMA rising but RSI overbought), observe or reduce positions.
Five, Case Demonstration (Bitcoin trend in 2023)
1. EMA golden cross: 20-day EMA crosses above 50-day EMA, indicating a strengthening trend.
2. MACD golden cross: Fast line crosses above the signal line, and the histogram turns from negative to positive, indicating increased momentum.
3. RSI adjustment: Price pulls back to the 50-day EMA, RSI recovers from 45 to 60, confirming effective support.
Result: The three resonated, and Bitcoin initiated a phase of rising.
Summary
- EMA: Determines trend direction and key support/resistance.
- MACD: Confirms trend momentum and potential reversals.
- RSI: Captures overbought and oversold conditions and short-term divergences.
Core principle: A single indicator is easily influenced; multi-dimensional verification is needed, and strict risk management is essential.
