sarfraz.ramay

Trend analysis and momentum with EMA & MACD

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar
For beginners like myself, understanding the basics.
EMA - exponential moving average or simply weighted moving average (most recent first), a very good detailed explanation with examples https://www.investopedia.com/terms/e/ema...
MACD - Moving Average Convergence Divergence, details https://www.investopedia.com/terms/m/mac...

I am using EMA (9,50,100)
EMA9, EMA50 and EMA100 simply means weighted moving averages over 9, 50 and 100 periods respectively with most recent prices having more weight-age. Notice EMA9 kisses the price closely and changes direction quickly to indicating if price is going up or down. Comparison with EMA50 & EMA100 gives a good idea of how current price is doing as compared to price averaged over longer periods. Also note that shorter periods change direction more quickly as compared to longer periods.

MACD and EMA are good for day trading only. They must be used with other indicators if you want to be sure that a bull/bear trend will continue to hold. Other patterns like head and shoulder, inverted head and should, pivots etc. can be used to confirm if its a strong trend.

MACD (12,26,9) - Traditionally trading was done over 6 days so 12 days is two weeks, 26 days a month hence the parameters. These two form the MACD line.
Formula for MACD = MA(12) - MA(26)
9 is for signal line which is EMA of the MACD line over 9 periods.

It is important to note that MACD is almost always used in conjunction with volume to avoid selling/buying too quickly. You will notice that MACD line changes in direction up/down is directly proportional to volume .

So, lets calculate profit for this example
first bear cross (SELL) marked in red. average price (open+high+low+closed) / 4 = 11,441
first bull cross (BUY) marked in green. average price (open+high+low+closed) / 4 = 8,892
people call this profit (but i think its just avoiding loss since you didn't make money on top of what you spent) = 11,441 - 8892 = 2549

second bear cross (SELL), average price = 8336
second bull cross (BUY), average price = 7297
Profit = 1038

Grand Profit = 2549 + 1038 = 3587USD per BTC
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