Understand the king of indicators, the "MACD Indicator", and how to avoid market maker whipsaws, getting on the main rise train with "valuable insights".

1️⃣Before the price of the coin enters the main rise, market makers often use Whipsaw to clear floating capital and reduce the cost of raising. Common Whipsaw techniques include:
🟧 Suppressing Whipsaw
The market maker creates a panic atmosphere by quickly dropping the coin price through the sale of some of their holdings. In this way, the coin price may experience a significant drop in a short period, causing some investors to mistakenly believe that the market has reversed, leading them to sell their valuable coins.

🟧 Sideways consolidation Whipsaw
The market maker allows the coin price to oscillate for a long time within a relatively narrow range, wearing down investors' patience. Investors holding the coin, seeing that the price does not rise for a long time, may choose to sell the coin to seek other investment opportunities.

🟧 Whipsaw after a rise
The market maker first raises the price of the coin to attract trend-following investors to buy in, and then suddenly lets the price drop. Investors who bought in following the trend may panic sell due to losses on their accounts.

2️⃣MACD sees through the market maker whipsaw scam
🟧Divergence phenomenon
1/Bottom Divergence
During the process of a price drop, if the price of the coin hits a new low but the MACD indicator's DIF line or the MACD histogram does not hit a new low simultaneously, this is called a bottom divergence. This often means that the downtrend of the coin price is about to end, and the market maker may be conducting a final Whipsaw by suppressing the coin price.

For example, if the price drops from 10 yuan to 8 yuan, then to 7 yuan, continuously setting new lows, but at this time the MACD's DIF line rises gradually from -0.5 to -0.3, indicating a bullish divergence. This shows that although the coin price is falling, the downward momentum is weakening, and the market maker may be secretly accumulating. Subsequently, the coin price is likely to reverse and enter the main rise.

2/Top Divergence
During the process of rising cryptocurrency prices, the price reaches a new high, but the MACD indicator's DIF line or MACD histogram does not reach a new high simultaneously, which is called a top divergence.
However, during the Whipsaw operation before the main rise, the market maker may create a false appearance of a short-term top divergence. At this time, it is necessary to combine the position of the coin price and other indicators for a comprehensive judgment.

If the coin price shows a seemingly top divergence at a relatively low level, but the trading volume does not show obvious signs of significant selling, and other technical indicators do not signal a clear sell, then this may be a whipsaw tactic by the market maker, aimed at scaring off investors who do not have a comprehensive technical analysis.

🟧Bar chart changes
1/ The green bars have shortened, but the coin price has not fallen.
In an uptrend, the green bars of the MACD histogram represent bullish strength. When the green bars begin to shorten, it is generally considered a signal of weakening bullish strength.

However, during the Whipsaw phase before the main rise, the market maker may shorten the green bars through a small amount of selling, but the coin price does not show a substantial decline.

At this time, if investors sell their coins solely based on the shortening of the green bars, they are very likely to be Whipsawed.

For example, during the rise, the MACD green bars gradually shorten, but the price only fluctuates within a small range without a significant pullback, which may indicate that the market maker is whipsawing.

2/Red bars shorten but the coin price has not risen
In a downtrend, the red bars represent bearish strength. When the red bars shorten, it usually indicates a weakening of bearish strength.
During the market maker whipsaw process, it is possible for the coin price to experience continuously shortening red bars while the price remains flat at a low level, but there is no temporary increase in price.
This indicates that the market maker may be secretly accumulating, and once the accumulation is complete, the coin price may enter the main rise.

🟧The crossover of the DIF line and the DEA line
1/secondary golden cross
After the price of the coin drops and stabilizes, the MACD indicator may show the DIF line crossing upwards through the DEA line, forming a golden cross. If the price sees a slight increase after the first golden cross followed by a pullback, but at this time the DIF line does not cross below the DEA line and forms a golden cross upwards again, this is called a second golden cross. The second golden cross is often a strong signal that the price is about to enter the main rise, indicating that the market maker may have conducted small-scale Whipsaw operations after the first golden cross, and the second golden cross indicates that the Whipsaw is over and the rally is about to begin.

For example, after a period of decline, the MACD shows the first golden cross, the coin price rises from 12 yuan to 13 yuan and then retraces to 12.5 yuan, but at this point, the MACD forms a golden cross again, and then the coin price quickly enters the main rise, reaching 18 yuan.

2/Reject death cross
During an uptrend, when the coin price experiences a brief adjustment, the DIF line may come close to the DEA line, but it does not form a downward death cross.
This indicates that the market maker is just making slight whipsaws, and the upward trend has not changed.
For example, during the upward trend, there was a slight adjustment, the DIF line of MACD quickly approached the DEA line, but just before crossing, the DIF line pulled away again, and thereafter the coin price continued to rise, entering the main rise.

3️⃣How to interpret the MACD indicator?
The MACD indicator consists of four components: the DIF line, the DEA line, the MACD histogram, and the zero line. Each component represents different data, which are obtained from the original chart, created to allow us to interpret the presentation more deeply yet intuitively, hence the birth of the MACD indicator.

Components of the MACD indicator

Here is some introduction about these four parts:
🟧MACD Line (DIF Line/Fast Line)
The fast line of MACD: The MACD line, also known as the DIF line (Differential Line), is the difference between the short-term moving average (12 EMA) and the long-term moving average (26 EMA).

The presence of the MACD line is to analyze short-term price changes. The MACD line or DIF line can be positive or negative. MACD fast line = short period average line - long period average line.

Positive MACD line: Represents that the short-period moving average is greater than the long-period moving average, which also means that the short-term average price of the product is higher than the long-term average price, indicating that the financial product is in an upward trend.

Negative MACD line: represents that the short-term moving average value is less than the long-term moving average value, meaning the short-term average price is lower than the long-term average price, indicating that the market financial products are in a downtrend.

The MACD line is also referred to as the fast line because it is most sensitive to changes in market prices.

🟧Signal line (DEA line/Slow line)
MACD slow line
In simple terms, the signal line (slow line) is the average value of the MACD line over a period of time (usually 9 days).
Since it is based on past MACD data for analysis, it is also referred to as the slow line.
The presence of the signal line is to capture longer-term trends.
Signal line/slow line = ∑(n MACD fast lines) / n
n = The time period we want to choose

The emergence of slow lines is meant to allow us as traders to discover trading opportunities more quickly. This is the key point, and it is the knowledge we will learn in the next chapter.

🟧MACD Histogram (Histogram / Divergence)
MACD histogram
The MACD histogram was created to understand the difference between the DIF line and the DEA line. With the histogram, we can see the difference more clearly. MACD histogram = DIF line - DEA line.

Bar charts can be divided into positive or negative values. From these bar charts, we can see that when the bar chart is positive: the fast line (DIF line) is above the slow line (DEA line).

The histogram is at 0: the fast line (DIF line) and the slow line (DEA line) are flat, which is a convergence point.

The histogram is negative: the fast line (DIF line) is below the slow line (DEA line).

🟧Zero Line
As a reference level, separating the fast line and slow line between positive and negative numbers serves as a boundary, allowing us to more clearly understand which area the current MACD data is in.

4️⃣Usage of MACD Indicator
The MACD indicator has many uses, and the three most common ways to use it are to find the following types of information:

🟧How to use the MACD indicator to observe price trends?
The simplest way to use the MACD indicator is to observe trends in financial product trading, with the most common applications including forex trading and stock and cryptocurrency trading. There are two types of trends in trading: upward trends and downward trends.

Uptrend: When both the fast line and the slow line are above the zero line, the cryptocurrency is generally in an uptrend.
Downtrend: When both the fast line and the slow line are below the zero line, the cryptocurrency is generally in a downtrend.

🟧How to use MACD golden cross and death cross to find buy and sell points?
Using the MACD indicator to find buy and sell points is one of the most common analysis methods. By identifying golden crosses or death crosses, we can find long and short points. The diagram below is an example using EUR/USD:

MACD Golden Cross: When the fast line (blue line) breaks through the slow line (orange line) from below to the top, it is called a golden cross, which is a good reference for buying or long signals.
MACD Death Cross: When the fast line (blue line) breaks down from above the slow line (orange line), it is called a death cross, which serves as a good reference for a sell or short signal.

🟧How to identify trend reversal points using the MACD indicator divergence?
This is an advanced way to use the MACD indicator. When there is a mismatch between the price action and the trend shown by the MACD indicator, there is a chance of MACD divergence. To put it simply, there is a change in the sentiment and opinion of investors about the price trend, and they believe that the price of the financial instrument does not correspond to its actual value.

The occurrence of MACD divergence is a warning that can be divided into two types, providing investors with a potential buy or sell signal:

MACD Divergence: When the price peaks higher than the previous peak, but the MACD line peaks lower than the previous peak, it creates a divergence. This indicates that the momentum of the price increase is weakening, suggesting that the market is skeptical about the subsequent price rise. Therefore, the death cross that occurs after the divergence can also be considered a sell/short signal.

MACD Divergence: When the price makes a series of lower lows, but the MACD line makes a series of higher highs, it forms a divergence. This indicates that the downward trend in price has slowed, and the market currently believes that the next wave of decline may present a buying opportunity. Therefore, a golden cross that occurs after the divergence is considered a buy/long signal.

5️⃣ Combine with other factors for comprehensive judgment

Although the MACD indicator has a certain role in identifying market maker Whipsaw schemes, it should not be relied upon solely for judgment; it is necessary to consider the following factors:

🟧Trading Volume
In the process of washing, the trading volume will generally show the characteristics of shrinkage. If it is to suppress the washing, the trading volume will be amplified when the currency price falls, but it will not be excessively amplified, and then it will shrink rapidly; If it is a sideways shock wash, the trading volume will continue to remain at a low level; If it is a pull-up pull-down wash, the trading volume will increase when it pulls up, and it will decrease when it falls. When the currency price enters the main rising wave, the trading volume is usually significantly amplified.

🟧The position of the coin price
If the coin price is at a relatively low level, the possibility of market makers whipsawing is greater; if the coin price is already at a high level, and some suspicious technical signals appear, then the possibility of market makers unloading needs to be given special consideration.

🟧Market environment
The trend of the market has an important impact on individual coins. If the market is in an upward trend, the probability of whipsaw before the main rise of individual coins is relatively high; if the market is in a downward trend, the market maker may take the opportunity to sell off.

The MACD indicator is one of the powerful weapons for investors in the cryptocurrency market. By thoroughly studying the performance of MACD under different circumstances, combined with factors such as trading volume, coin price position, and overall market environment, investors can effectively uncover the market maker's whipsaw scheme before the main rise, avoiding being easily shaken out.