The MACD: My secret weapon for trading that no one uses well

Oh my goodness! I've been using the MACD for years and I'm still amazed at how most traders completely misunderstand it. This oscillator is not just another indicator in the bunch - it's a damn gem if you know how to squeeze it.

The MACD (Moving Average Convergence Divergence) was invented by Gerald Appel in the 70s, and although many consider it "late" for relying on past data, I prefer to call it "reliable". While novices chase predictive indicators that promise gold and glory, I continue to trust this veteran that has saved my skin more times than I can count.

The essence of the MACD is quite simple: it compares two exponential moving averages to detect momentum and trend. The interesting thing is that EMAs give more weight to recent prices, something that simple SMAs do not. What a difference in markets as volatile as crypto!

The Three Musketeers of the MACD

The indicator has three elements that dance around a zero line:

• The MACD line: 12-period EMA minus 26-period EMA. This is what tells me if there is bullish or bearish momentum.
• The signal line: a 9-day EMA over the MACD line. The crosses between the two are pure gold.
• The histogram: the difference between the two previous lines. When it grows, the momentum accelerates; when it contracts, something smells like a change.

The classic parameters are 12, 26, and 9, although some "experts" modify them for greater sensitivity. In my experience, that's looking for trouble in crypto - we already have enough volatility without creating more false signals!

The truth about MACD signals

Crosses are what really matter here. When the MACD line crosses above zero, the market gains bullish momentum; when it crosses below, get ready for the drop. But be careful, not all crosses are the same.

What has saved me from disasters is divergences. When the price makes higher highs but the MACD makes lower highs, something smells bad. That bearish divergence has warned me of many crashes before most saw them coming. And vice versa with bullish divergences - perfect signals to buy when everyone is in panic.

But let's be realistic: the MACD is not infallible, especially in sideways ranges where it generates false signals as if they were confetti. That's why I combine it with RSI - the perfect duo to confirm signals and avoid disasters.

This indicator is probably the one that has helped me the most in identifying trends and momentum. While many obsess over exotic indicators that promise to make you a millionaire, I continue to trust this old friend who, although imperfect, is honest about its limitations.

And remember: no indicator by itself will make you rich. The MACD is simply one more tool in your arsenal - use it wisely and as part of a broader strategy.