Lesson 5

Yibo's Cryptocurrency Host's Practical Knowledge, I'll keep it for later viewing

Hello everyone! Today, we won't talk about complicated terminology. Let's use the most down-to-earth language to discuss the MACD indicator — this "old tool" used in stock trading and crypto trading — and how it actually comes in handy in cryptocurrency trading. Whether you're a newcomer just entering the market or a seasoned veteran, after listening to this, you'll be able to understand MACD and know how to use it to help make trading decisions.

First, understand: What exactly is MACD?

Simply put, MACD is a tool to help you see the "up and down trend" of the market. It was originally designed for the stock market, but because it's easy to use and understand, it has been adopted in forex, futures, and now in our crypto markets.

It mainly consists of three parts. No need to memorize technical terms, just remember "two lines + a histogram":

Fast line (DIF): reacts quickly, follows short-term price changes, capturing recent 12-day price trends;

Slow line (DEA): reacts slowly, reflects long-term trends, such as the past 26 days' price movements, helping you filter out short-term "noise";

Histogram: located between the two lines, with red and green bars that fluctuate, representing the "difference" between the fast and slow lines. Thicker red bars indicate stronger upward momentum; thicker green bars indicate stronger downward momentum.

There's also a key "zero line," which you can think of as the "dividing line" between bullish and bearish:

- When the lines are above zero, the market generally wants to go up;
- When below zero, it generally wants to go down.

Default parameters are 12, 26, 9. No need to memorize them rigidly; just know you can adjust them based on different coin volatilities.

Why look at MACD when trading cryptocurrencies?

Crypto markets are known for their huge volatility. Prices can surge 20% in the morning and drop 15% in the afternoon. Without a tool to catch trends, it's really tough. The advantage of MACD is just right for these needs:

- Helps you identify key points amid wild price swings, knowing whether to buy or sell;
- Suitable for both short-term (hours) and medium-to-long-term (days, weeks) trading, across different timeframes;
- Signals are very intuitive — no guessing needed. Red/green bars, line crossovers — easy to understand at a glance;
- Can be combined with other tools for higher accuracy, making automated trading easier to program.

Core Usage: These 3 signals, understand them and you won't panic
No need for complex analysis. Remember these three core signals, and you'll be able to handle most situations:

1. Golden Cross: Buy Signal
When the fast line crosses above the slow line, it's called a "Golden Cross," meaning "a buying opportunity may be coming."
It's best if the cross occurs near the zero line, making the signal more reliable — indicating the market is shifting from "wanting to fall" to "wanting to rise."
If the cross happens with increasing volume, it shows more buyers are entering, strengthening the upward move.
For short-term trading (1-hour, 4-hour charts), look for golden crosses; for holding long-term (days, weeks), the daily or weekly charts' golden cross is more stable.

2. Death Cross: Sell Signal
When the fast line crosses below the slow line, it's called a "Death Cross," warning you "it's time to reduce positions or exit."
If the price hits a new high but MACD doesn't confirm with a new high (divergence), it's a strong sell signal — don't hesitate.
If the death cross occurs below the zero line, it indicates the market is weak, with a higher probability of decline.
Death crosses on daily or weekly charts are more reliable than on hourly charts. For example, a weekly death cross suggests a downward trend for some time.

3. Histogram: Gauging the "Strength" of Up or Down Movements
The histogram is like an "energy meter," showing whether the upward or downward momentum is strong:
- Increasingly thick red bars indicate growing upward strength; you can hold your position;
- Increasingly thick green bars indicate strengthening downward momentum; consider exiting;
- Thinning red bars suggest upward momentum is waning, possibly a pullback;
- Thinning green bars suggest downward momentum is weakening, possibly a rebound;
- When bars change from red to green or vice versa, it's a trend reversal signal — keep an eye on price action.

Practical Tips: Using it this way improves accuracy

Just relying on signals isn't enough. Remember these tips to avoid pitfalls:

1. Don't blindly trust a single signal; verify with other tools
Use MACD alongside others like RSI (overbought/oversold) or Bollinger Bands (volatility range). Confirm signals with multiple tools before acting.
Check multiple timeframes. For example, if the daily chart shows a golden cross and the 4-hour chart also confirms, that's "resonance," increasing reliability.

2. Divergence: Early Warning of Trend Reversal
Very practical for escaping tops or bottoms:
- Price makes a new high but MACD doesn't (top divergence), indicating upward momentum is fading and a decline may follow;
- Price makes a new low but MACD doesn't (bottom divergence), indicating downward momentum is weakening and a rebound may occur.
After divergence appears, wait for a confirmed golden or death cross before acting. Don't rush.

3. Parameters can be adjusted; don't stick rigidly to defaults
Different coins have different volatilities. For example, Bitcoin is relatively stable, while altcoins can fluctuate 50% in a day. Adjust parameters accordingly:
- For highly volatile altcoins, lower parameters (e.g., 6/13/5) for faster response;
- For long-term holding, higher parameters (e.g., 14/28/12) to filter out short-term noise.

Common pitfalls: these 3 mistakes must be avoided

Many traders lose money because they fall into these traps. Let's avoid them:

1. Relying solely on MACD without other tools
In sideways markets, MACD can give false signals — frequent crossovers. Always combine with other indicators to filter out false positives.

2. Using the same parameters for all coins and markets
Don't just use the default 12/26/9 everywhere. Adjust based on the specific market conditions; otherwise, signals will lag, and you'll miss the best entry/exit points.

3. Mistaking pullbacks for divergence
Not every price correction is divergence. Divergence requires at least 3 consecutive high/low points that don't match, with a clear gap. Otherwise, it's just a normal pullback — don't overreact.

Summary: Keep it simple, don't overcomplicate

In conclusion, MACD's core functions are "trend analysis, signal catching, avoiding traps":
- Buy on golden cross, sell on death cross;
- Use histogram to gauge momentum;
- Combine with other tools and multiple timeframes for better accuracy;
- Set proper stop-loss and take-profit levels, avoid greed, and take profits when appropriate.

MACD isn't complicated at all. The key is to avoid fancy analysis, focus on core signals, and adjust parameters flexibly. This way, you can reduce detours and increase profits in the crypto market. Hope this session helps everyone. Wishing you smooth trading and may you buy coins that surge explosively! Thank you all!