Here’s 5 ways investors can use the MACD indicator to make better trades

Traders use the MACD indicator to identify turning points, facilitate entries on pullbacks and capture the larger part of a move until the trend starts to reverse course.

The Moving Average Convergence Divergence, also called the MACD, is a trend-following momentum indicator used widely by traders. Although the MACD is a lagging indicator, it can be very useful in identifying possible trend changes.

BTC/USDT daily chart. Source: TradingView

The MACD oscillates above and below a zero line, also known as the centerline. The shorter moving average is subtracted from a longer moving average to arrive at the value of the MACD. A signal line, which is the exponential moving average of the MACD completes the indicator.

The blue line is the MACD and the red line is the signal line. When the blue line crosses above the red line, it is a signal to buy and when the blue line falls below the red line, it is a trigger to sell. A cross above the centerline is also a buy signal.

Let’s have a look at how to use the indicator for better entries and exits from a variety of positions. Afterward, we’ll investigate how the MACD is analyzed during pullbacks and in an uptrend. Lastly, we’ll take a brief look at the importance of divergences on the MACD.

Adapting the indicator to crypto market volatility

Compared to legacy markets, cryptocurrencies witness large movements in a short time. Therefore, the entries and exits should be quick to capture a large part of the move but without too many whipsaw trades.

When a new uptrend starts, it generally remains in force for a few weeks or months. However, every bull phase has its share of corrections. Traders should aim to stay with the trend and not get stopped out by every minor pullback along the way.

The goal should be to enter the position early as the new uptrend starts and remain with the position until a trend reversal is signaled. However, that is easier said than done. If the indicator gives too many signals, there will be several unwanted trades which will incur large commissions and be emotionally draining.

On the other hand, if the time frames are chosen to give fewer signals, a large part of the trend could be missed as the indicator will be slow in identifying reversals.

This problem was addressed by MACD creator Gerald Appel in his book, Technical Analysis: Power Tools for active investors.

Appel highlights how two MACD indicators can be used during strong trends, with the more sensitive one being used for entries and the less sensitive one being used for exits.

Related: Unsure about buying the dip? This key trading indicator makes it easier

Are two MACDs better than one?

The default value used for the MACD indicator by most charting software is the 12- to 26-day combination. However, for the subsequent examples, let’s use one MACD with the 19- to 39-day combination which is less sensitive and will be used for generating sell signals. The second one will be more sensitive, using the 6- to 19-day MACD combination which will be used for buy signals.

BTC/USDT daily chart. Source: TradingView

Bitcoin (BTC) was trading in a small range in September 2020 and during that period, both MACD indicators were largely flat. In October, as the BTC/USDT pair started an uptrend, the MACD gave a buy signal when the indicator crossed above the centerline in mid-October of 2020.

After entering the trade, watch how the MACD came close to the signal line on four occasions (marked as ellipses on the chart) on the sensitive 6- to 19-day MACD combination. This could have resulted in an early exit, leaving a large part of the gains on the table as the uptrend was only getting started.

On the other hand, notice how the less sensitive 19- to 39-day combination remained steady during the uptrend. This could have made it easier for the trader to stay in the trade till the MACD dropped below the signal line on Nov. 26, 2020, triggering a sell signal.

BNB/USDT daily chart. Source: TradingView

In another example, Binance Coin (BNB) crossed over the centerline on July 7, 2020, triggering a buy signal. However, the sensitive MACD quickly turned down and dipped below the signal line on July 6, as the BNB/USDT pair entered a minor correction.

Comparatively, the less sensitive MACD remained above the signal line until Aug. 12, 2020, capturing a larger portion of the trend.

LTC/USDT daily chart. Source: TradingView

Traders who find it difficult to keep track of two MACD indicators can also use the default 12- to 26-day combination. Litecoin’s (LTC) journey from about $75 to $413.49 generated five buy and sell signals. All the trades generated good entry (marked as ellipses) and exit (marked with arrows) signals.

Related: 3 ways traders use moving averages to read market momentum

How the MACD can signal corrections

Traders can also use the MACD to buy pullbacks. During corrections in an uptrend, the MACD drops to the signal line but as the price resumes its uptrend the MACD rebounds off the signal line. This formation, which looks similar to a hook, can give a good entry opportunity.

ADA/USDT daily chart. Source: TradingView

In the example above, Cardano (ADA) crossed over the centerline on Jan. 8, 2020, signaling a buy. However, as the up-move stalled, the MACD dropped close to the signal line on Jan. 26, 2020 but did not break below it. As the price recovered, the MACD broke away from the signal line and resumed its move higher.

This gave an opportunity to traders who may have missed buying the cross above the centerline. The sell signal was generated on Feb. 16 just as the ADA/USDT pair was starting a deep correction.

MACD divergences can also signal a trend change

BTC/USDT daily chart. Source: TradingView

Bitcoin’s price continued to make higher highs between Feb. 21, 2021, and April 14 but the MACD indicator made lower highs during the period, forming a bearish divergence. This was a sign that the momentum was weakening.

Traders should become cautious when a bearish divergence forms and avoid taking long trades during such a period. The long bearish divergence in this case culminated with a massive fall.

LTC/USDT daily chart. Source: TradingView

Litecoin shows how the MACD formed a bullish divergence during a strong downtrend from July to December 2019. Traders who bought the crossover above the centerline may have been whipsawed in September and again in November.

This shows that traders should wait for the price action to show signs of changing its trend before acting on the MACD divergences.

A few important takeaways

The MACD indicator captures the trend and also can be used to gauge an asset’s momentum. Depending on the market conditions and the asset being analyzed,  traders may vary the period setting of the MACD. If a coin is a fast mover, a more sensitive MACD could be used. With slow movers, the default setting or a less sensitive MACD may be used. Traders can also use a combination of a less sensitive and more sensitive MACD indicator for better results.

However, there is no perfect indicator that works all the time. Even with the above permutations and combinations, trades will move opposite to expectations.

Traders should deploy money management principles to cut losses quickly and protect the paper gains when the trade moves as per the assumption.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Romanian university plans to accept crypto payments for admission fees

The academic institution with a student body of roughly 11,000 said the addition of crypto payments was part of a plan to support local businesses like Elrond.

A public university in the Romanian city of Sibiu in Transylvania has said it will allow students to pay for their admission fees in crypto.

According to an announcement from Lucian Blaga University of Sibiu, or LBUS, on Wednesday, the institution plans to implement crypto payment methods for its more than 11,000 students starting in July. Students will reportedly be able to pay for admission fees — tuition is roughly $1,000 per year for undergraduates — using Elrond (EGLD), which the university will then convert to Romanian leu.

“Our university has been and will continue to be a supporter of the community and local business, and the decision to develop this partnership with Elrond is part of this strategy,” said university Rector Sorin Radu.

Starting as an initial exchange offering from the Binance Launchpad in 2019, Elrond has offices in the Transylvanian town of more than 400,000 people and its team contains many graduates of the local university. The project said it plans to carry out other collaborations with LBUS in the future, including research.

According to legislation implemented in July, exchange providers that monitor the purchase of crypto with fiat currency and vice versa must now be authorized if they operate in Romania. Many crypto users handling digital assets in the country are required to use exchanges that incorporate Know Your Customer requirements and comply with both domestic and foreign Anti-Money Laundering provisions.

Elrond has recently seen some significant changes, including its mainnet swap last year as the ERD token became EGLD. At the time of publication, the price of EGLD is $231, having risen more than 13% in the last 24 hours.

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Everything The Felder Report got wrong about Bitcoin

Former hedge fund manager Jesse Felder claimed, among other things, that hard forks were “multiplying the number and type of Bitcoins in circulation.”

Bitcoiners are crying foul at former billion-dollar hedge fund manager Jesse Felder’s “inaccurate” hot take blog post about Bitcoin today in which he claims the crypto asset “doesn’t make sense as an investment nor as a currency alternative.” Bitcoiners seemed taken aback by the number of factual inaccuracies in the post coming from someone working in finance.

In the Nov. 18 post on his financial blog titled “Please Stop Asking Me About Bitcoin,” Felder claims Bitcoin (BTC) is not used as a medium of exchange, nor does it provide any store of value. He also questioned the value of one of the key features of the cryptocurrency — its scarcity, with only 21 million possible coins — by claiming that hard forks are “multiplying the number and type of Bitcoins in circulation.”

“If you put together all the hard forks Bitcoin has undergone since it was first created, the number of total Bitcoins has actually grown faster than the number of dollars,” said Felder. “That’s a fact.”

However, it’s not a fact unless you mistake BCH or BSV as part of the Bitcoin supply. Coin Metrics co-founder Nic Carter was quick to correct this, stating that “almost everything in this post is wrong” and pointed out that “hard forks did not dilute Bitcoin.”

The former hedge fund manager also claimed that Bitcoin could “be supplanted by a better cryptocurrency” that hasn’t been created yet. More than one Twitter user said that this would be “highly unlikely” due to network effects.

Felder also seemed to be operating under the belief that the Bitcoin network itself had been attacked, rather than insecure exchanges or wallets with poor security, when he claimed “millions of dollars worth of Bitcoin has been hacked.” He continued:

“Bitcoin may make a great deal of sense as a speculation. Ponzi schemes can work out great for early adopters.”

Felder’s confident assertions about Bitcoin had many Twitter users champing at the bit to set him right.

Bitcoin bull Anthony ‘Pomp’ Pompliano was one of the first to respond, calling Felder’s words “really inaccurate” and offering to educate the former hedge fund manager over a phone call. Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation, followed suit, stating Felder was “too lazy to do the research” and out of his depth.

Part of Felder’s apparent confusion may be due to him stating he relied on an “old school definition” of investments, however the fact is that hard forks do not affect the total Bitcoin supply of 21 million coins. While hackers are able to steal coins from time to time, these crimes are usually limited to exchanges and custodians, phishing attempts, and misplaced private keys — not the Bitcoin network itself.

“Better to have no opinion than a poorly reasoned one,” said Twitter user anilsaidso.

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Are we dumb? Financial illiterates ‘twice as likely to own crypto’

Those with less financial knowledge may be twice as likely to invest in crypto.

A report from Canada’s central bank shows that while most Canadians are knowledgeable about basic finance and Bitcoin, few actually hold any crypto assets.

According to the results of Bank of Canada’s 2019 Cash Alternative Survey published in August 2020, financial literacy is positively associated with the awareness of cryptocurrencies but negatively associated with ownership.

The bank considers financial literacy as a basic understanding of investing and saving for retirement, with 47% of respondents from August to September 2019 estimated to have a high level of financial literacy and 18% a low level. The results suggest that Canadians with a lower level of understanding of finance could be twice as likely to invest in crypto assets.

“93 percent of Canadians with high financial literacy are aware of cryptocurrencies, as opposed to only 72 percent of those with low financial literacy,” the survey results stated.

“Conversely, 8 percent of those with low financial literacy reported they own cryptocurrencies compared with 4 percent of Canadians with high financial literacy.”

Based on the survey, the bank estimated that roughly 84% of Canadians overall have at least heard of cryptocurrencies, with 5% owning Bitcoin (BTC) or altcoins.

“Awareness and ownership tend to be highest among young, male, university-educated or high-income Canadians,” the bank stated.

This data is supported by a Feb. 2020 report from financial group ING’s Think Forward Initiative, which is based on a 2018 survey of people from 15 different countries including the United States, Australia, the United Kingdom, and members of the European Union.

“Our estimates reveal that the more financially literate are less likely to own cryptocurrencies,” the report stated. “They are more likely not to intend to own them in the future.”

Specifically, the group estimated that a “one standard-deviation increase” in a participant’s financial literacy score — based on knowledge of inflation, simple interest, compound interest, and financial risk — decreased the predicted probability of owning crypto assets from 8.63% to 5.7%. In addition, a similar increase in the score showed the chances of those surveyed intending not to own any crypto in the future also increased.

“A large part of the cryptocurrency market [is compromised] of unsophisticated investors with lower financial literacy skills. These investors are likely to overestimate the reward prospects in cryptocurrencies and underestimate the risk involved in related investment.”

However, some data suggests that many investors are shying away from crypto due to a lack of cryptocurrency literacy. Trading and investment platform eToro conducted a survey in 2018 that revealed that 44% of online investors polled were not trading crypto because they felt they lacked the proper education. A similar study conducted by Grayscale in 2019 found that U.S. investors would be more likely to invest in Bitcoin if there were more educational resources available on crypto.

And there is also evidence that some of the most financially literate people in the world are investing into cryptocurrencies. Research from Fidelity Digital Assets shows that 36% of nearly 800 institutional investors polled are invested in digital assets. A whopping 80% of those surveyed find at least something appealing about crypto.

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University of Utah Pays Ransomware Gang to Prevent Student Data Leak

This is one instance where the ransomware gang got away with it.

The University of Utah’s College of Social and Behavioral Science confirmed that they were hit by a ransomware attack on July 19.

According to a statement issued by the University, the gang left many computers inaccessible for several hours as staff took servers offline to prevent the malware from spreading to other machines on the school’s network.

Following internal discussion, officials decided to work with the school’s cyber insurance provider to pay a $457,059 ransom in order to prevent a data leak.

Staff from the university clarified that the insurance policy paid part of the ransom and they covered the rest themselves. No details about the crypto involved in the transaction were disclosed.

In early June, media outlets reported that the NetWalker ransomware gang had attacked Michigan State University, or MSU. While the gang threatened to leak students’ records and financial documents, officials from the university have said that they refused to pay the ransom.

Cointelegraph also reported on June 3 that the NetWalker ransomware group had also targeted three US-based universities.

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