Trading in the volatile world of cryptocurrency necessitates a structured approach and well-planned strategy. Since cryptocurrencies typically have a low correlation to economic fundamental data and other markets, technical analysis and crypto-specific news remain the main drivers for analyzing cryptos.
Most analysts would agree that there is no “perfect” trading strategy. However, there are many methods that are well suited to those interested in trading cryptocurrencies. You simply need to pick out the strategy best suited for the market direction and your trading style.
Today we will be covering crypto trading strategy based on the combination of the TRIX indicator and the MACD indicator.
Understanding the TRIX Indicator
The triple exponential average (TRIX) indicator is a momentum oscillator. The indicator oscillates around zero and displays the percentage rate of change between two triple smoothed exponential moving averages. TRIX is also known as the ‘impulse indicator’ that is capable of pointing out when there is a growing or sinking impulse in the market.
The TRIX Indicator is composed of Zero line and TRIX line.
When the TRIX is below 0.0 and moving lower, the trend is considered down. When the TRIX is above 0.0 and moving higher, the trend is considered up.
A positive TRIX value tells traders that there is an overbought market while a negative value indicates an oversold market. Therefore, whenever TRIX crosses above the zero line, it gives a buy signal, and when it closes below the zero line, it gives a sell signal.
The TRIX indicator has a tendency to be a leading than lagging indicator. The standard setting for TRIX is 14-period for the triple-smoothed EMA. In a shorter time frame, if traders change the default parameter to 5 instead of 14, it will make the indicator more volatile and better suited for centerline crossovers.
TRIX can also indicate when a trend reversal may be underway. Bearish divergence is when the price makes a higher high, but the TRIX doesn’t. It signals weakening buying momentum, which could result in an eventual reversal.
Bullish divergence is when the price makes a lower low but the TRIX doesn’t. It indicates selling momentum is not as great as it was on prior price drop. Weak selling momentum could lead to an eventual reversal.
Understanding the MACD Indicator
The MACD indicator measures the relationship between the 26-period Exponential Moving Average (EMA) and the 12-period EMA. MACD is an indicator that follows the trend and is used to give you an idea of how overbought or oversold a market condition exactly is.
The MACD indicator consists of three parts: MACD line (blue color), MACD Signal Line (orange color), and the MACD Histogram. The line at the center is called the zero line.
MACD crosses can provide confirmation of a trend change, at least in the short term. MACD crosses indicate a shift in trend momentum, translating to buy or sell signals. There are two types of MACD crosses. When the MACD line crosses above the MACD signal line, it is known as a bullish cross. When the MACD line crosses below the MACD signal line, it is known as a bearish cross.
Crypto trading strategy based on TRIX and MACD
Today’s crypto trading strategy focuses on using the TRIX indicator in conjunction with the MACD indicator for accurate entry and exit.
The buy signal is generated whenever the TRIX crosses above the zero line and a bullish cross of the MACD happens in the oversold territory. Waiting for the price to move back across the zero line to exit the trade can mean giving back a lot of profit. So, traders exit the trade when the MACD indicator starts moving down from overbought territory and the TRIX line crosses below 40.
As you can see from the chart of BTCUSD, the crypto started moving higher once the buy criteria were fulfilled.
A sell signal is generated whenever the TRIX crosses below the zero line and a bearish cross of the MACD indicator happens in the overbought territory. Waiting for the price to move above the zero line to exit the trade can mean giving back a lot of profit. So, traders exit the trade when the MACD indicator starts moving higher from oversold territory and the TRIX line crosses above -40.
As you can see from the chart of BTCUSD, the crypto started moving lower once the sell criteria were fulfilled.
As you can see, using the MACD indicator in conjunction with the TRIX indicator can help you trade cryptos better. Using the two indicators in tandem can help avoid false signals and create profitable trading.
Trades of the Day Research Team