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INTERMEDIATE

MACD Divergence Strategy

Advanced momentum strategy that identifies hidden bullish and bearish divergences for high-probability signals

Difficulty

Intermediate

Risk Level

Medium

Best For

Swing Trading

Timeframe

4h - 1d

What is MACD Divergence?

MACD divergence occurs when the price action and MACD indicator move in opposite directions. This powerful signal often precedes major trend reversals and provides high-probability entry points.

MACD = Fast EMA(12) - Slow EMA(26)
Signal = EMA(9) of MACD
Histogram = MACD - Signal Line

Types of MACD Divergence

Bullish Divergence

📈

Price makes lower lows

Two or more swing lows

📊

MACD makes higher lows

Indicator shows increasing momentum

🎯

Signal: BUY

Potential trend reversal upward

Bearish Divergence

📉

Price makes higher highs

Two or more swing highs

📊

MACD makes lower highs

Indicator shows decreasing momentum

🎯

Signal: SELL

Potential trend reversal downward

Trading Rules

Bullish Divergence Entry

  1. 1.Identify price making lower lows (at least 2 swing points)
  2. 2.Confirm MACD making higher lows than previous swing
  3. 3.Wait for MACD histogram to start increasing
  4. 4.Enter long when price breaks above recent resistance

Bearish Divergence Entry

  1. 1.Identify price making higher highs (at least 2 swing points)
  2. 2.Confirm MACD making lower highs than previous swing
  3. 3.Wait for MACD histogram to start decreasing
  4. 4.Enter short when price breaks below recent support

Real World Example

Bitcoin (BTC) Bullish Divergence

Swing Low 1

$38,000

MACD: -450

Swing Low 2

$35,000

MACD: -380

Signal

BULLISH DIVERGENCE

Price ↓, MACD ↑

Analysis:

  • ✓ Price made lower low ($35k vs $38k)
  • ✓ MACD made higher low (-380 vs -450)
  • ✓ Histogram bars getting smaller (less negative)
  • ✓ Strong reversal signal confirmed

MACD Parameters

Fast EMA

12

Short-term momentum

Slow EMA

26

Long-term trend

Signal Line

9

Trigger line

Advantages & Disadvantages

Advantages

✓High-probability reversal signals
✓Works in all market conditions
✓Early warning system for trend changes
✓Combines momentum and price action
✓Clear entry and exit signals

Disadvantages

✗Requires practice to identify correctly
✗Can be subjective in swing point selection
✗False signals in very strong trends
✗Works better on higher timeframes
✗Not suitable for scalping

Risk Management

1.

Stop Loss

Place below recent swing low (bullish) or above swing high (bearish)

2.

Take Profit

Target 2:1 or 3:1 reward-to-risk ratio, or next major resistance/support

3.

Position Size

Risk no more than 1-2% of capital per trade

4.

Confirmation

Wait for price action confirmation before entering

Disclaimer

MACD divergence trading requires experience and practice. This strategy is for educational purposes only. Divergences can be subjective and may produce false signals. Always combine with other analysis methods, use proper risk management, and never risk more than you can afford to lose. Past performance does not guarantee future results.