This is one indicator I always use, and while it’s already one of the most used indicators, I believe I’m able to learn you something new whether you’re completely new to this indicator or have been using it for some time (like me)

What does it do?

The Moving Average Convergence Divergence measures the “Divergence” or the distance between 2 selected Moving Averages. These Moving Averages can be changed in the settings but on Tradingview are defaulted at 12 slow & 26 fast.

This in my opinion, are not the most ideal ones but we’ll get to that later.

When the MACD itself (here blue line) crosses the MACD Moving Average (here orange line) to the downside, it’s considered bearish.

When it does so to the upside, it’s considered bullish.

Settings

As I noted earlier, I’m not that big of a fan of the regular settings.

These input settings work much better for determining clear trends + drawing trendlines.

I got rid of the Histogram (the green and red bars) as it doesn’t give any extra value. All it does is distract me, so obviously I chose to just cut it out all together.

I choose white for the MACD and red for the Macd MA (aka signal line), but that’s just personal preference, doesn’t matter at all actually (just don’t pick colours that look a lot like each other please).

How I use it (and you should too)

Earlier, I showed you when this indicator is “Bullish” or “Bearish”. This however, isn’t where this indicator is that useful, as it regularly has “fakeouts” and leaves you swimming against the tide (going long in a macro downtrend & going short in a macro uptrend).

I like using it in combination with trendlines to determine where the trend is going and if it could break soon.

If you’re not yet 100% comfortable with trendlines and how to use them, then I definetly recommend checking these articles out as they will take you from zero to hero (with trendlines that is).

How to profitably trade by using trendlines

What we are going to do is use this knowledge and not only draw the trendlines on the regular chart, but also on the Macd indicator itself. Doing this will gain us some very interesting insights and trade possibilities.

I want you to look at this chart and especially the time when the trends end.

What should be catching the eye here, is that the MACD with these specific settings is way faster at catching the end of a trend and the start of a new one than the Trendlines on the regular Price do.

Using this strategy, you would have recognized that on the 9th of November at 250 USD per SOL, the uptrend had stopped. Using regular trendlines, you would have only come to this conclusion by the Third of December when price was at 235USD when the price made a Higher Low.

Bullish and Bearish Divergence

This is one of the most reliable way of spotting “bottoms” and “tops”, I have ever found. The philosphy behind it is that we are looking for the difference between the Price action itself, and the buying/selling power behind the movement itself. Not sure you completely understand? Take a look at these graphs.

Bearish Divergence

This indicates tops and is recognized by the fact that the price is still pushing higher, while the MACD itself is actually in a downtrend (making LH and LL)

A clear example of this is the now infamous 10th of November 21' top, when Bitcoin topped out at 69K.

People who where using this strategy however, might even have seen this coming. In fact, ever since the 6th of October, the MACD topped out, back when Bitcoin price itself was stilll at 56K (a 25% difference to the real top at 69K).

On October 20th, the downtrend on the MACD was confirmed, with the next High going lower than the previous one. This was a major short-term warning. At this point, Bitcoin topped out at 67K, and that full well could have been the top.

However, on the 10th of November, Bitcoin gave the world another chance at seeing this big warning sign, with yet another Higher price being set, but also another Lower High on the MACD.

Bullish divergence

Now, we are going to look for the exact opposite. Price in a clear downtrend while MACD is making HL and HH.

For this, I had to go back to the summer of 2021, which was the last time I could find a bullish divergence on the Daily timeframe. Another telltale sign that this is a thrustworthy indicator, since it hasn’t yet occured in the December 21' — ? downtrend

From May, all the way to the July, price was continiously grinding lower. The MACD however, was in a clear uptrend and was making indications for months on end that this particular downtrend might not last as long as expected.

The 25th of July confirmed this with Price breaking the downtrend it had been in.

When using MACD to trade, you basically want to be looking for places where Price and MACD are in opposite trends, indicating that a break of the current Price trend is soon.

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