Bitcoin Moving Average Convergence Divergence Chart

Bitcoin moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a coin's price. The Bitcoin MACD is calculated by subtracting the BTC 26-period exponential moving average (EMA) from the BTC 12-period EMA.

The result of that calculation is the Bitcoin MACD line. A nine-day EMA of the MACD called the 'signal line,' is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals. Crypto traders may buy the token when the Bitcoin MACD crosses above its signal line and sell—or short—the coin when the MACD crosses below the signal line. Bitcoin moving average convergence divergence (MACD) indicators can be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls.

Bitcoin MACD - Calculation

Bitcoin MACD is calculated by subtracting the long-term Bitcoin EMA (26 periods) from the short-term Bitcoin EMA (12 periods). An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points.

The BTC exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period.

Bitcoin Moving Average Convergence Divergence - EMA12

Bitcoin Moving Average Convergence Divergence - EMA26

Learning From Bitcoin MACD Baseline

The Bitcoin MACD has a positive value (shown as the blue line in the chart) whenever the 12-period EMA (indicated by the red line on the price chart) is above the 26-period EMA (the blue line in the price chart) and a negative value when the 12-period EMA is below the 26-period EMA. The more distant the Bitcoin MACD is above or below its baseline indicates that the distance between the two EMAs is growing.

In the following Bitcoin MACD chart, you can see how the two EMAs applied to the price chart correspond to the MACD (blue) crossing above or below its baseline (dashed) in the indicator below the price chart.

Bitcoin MACD is often displayed with a histogram (see the chart below) which graphs the distance between the Bitcoin MACD and its signal line. If the Bitcoin MACD is above the signal line, the histogram will be above the MACD's baseline. If the MACD is below its signal line, the histogram will be below the MACD's baseline. Crypto traders use the MACD's histogram to identify when bullish or bearish momentum is high.

Bitcoin MACD vs. Relative Strength

The Bitcoin relative strength indicator (RSI) aims to signal whether a crypto market is considered to be overbought or oversold in relation to recent price levels. The Bitcoin RSI is an oscillator that calculates average price gains and losses over a given period of time. The default time period is 14 periods with values bounded from 0 to 100.

Bitcoin MACD measures the relationship between two Bitcoin EMAs, while the Bitcoin RSI measures price change in relation to recent price highs and lows. These two indicators are often used together to provide analysts a more complete technical picture of a crypto market.

These Bitcoin indicators both measure momentum in a crypto market, but, because they measure different factors, they sometimes give contrary indications. For example, the Bitcoin RSI may show a reading above 70 for a sustained period of time, indicating a market is overextended to the buy-side in relation to recent prices, while the Bitocin MACD indicates the market is still increasing in buying momentum. Either indicator may signal an upcoming trend change by showing divergence from price (price continues higher while the indicator turns lower, or vice versa).

Limitations of Bitcoin MACD

One of the main problems with Bitcoin divergence is that it can often signal a possible reversal but then no actual reversal actually happens—it produces a false positive. The other problem is thatBitcoin divergence doesn't forecast all reversals. In other words, it predicts too many reversals that don't occur and not enough real price reversals.

'False positive' Bitcoin divergence often occurs when the price of a coin moves sideways, such as in a range or triangle pattern following a trend. A slowdown in the momentum—sideways movement or slow trending movement—of the price will cause the Bitcoin MACD to pull away from its prior extremes and gravitate toward the zero lines even in the absence of a true reversal.