When the K-line continuously hits new highs while the MACD energy bars are shrinking, the market is quietly telling you the truth.
Eight years ago, I was completely crushed by the market for the first time. When Bitcoin soared to $58,000, my account had a floating profit of 800,000, and that sense of dizziness made me forget the existence of risk. However, the MACD red energy bars were becoming shorter like a deflated ball—prices reached new highs, but the momentum had long been unable to keep up.
At that time, I didn’t understand that this was a top divergence signal; I foolishly held on to the hope of 'selling after one more surge', and as a result, my account was wiped out overnight.
Later, I printed out three years of K-line charts and covered my entire study with them. I finally realized after the corners were worn down: when the main force pulls or dumps, they have already left traces on the energy bars.
01 Understanding MACD divergence is the key to market insight
MACD divergence is the most important 'lens' through which I understand the market. It is not some mysterious tactic, but rather directly reflects the strength changes of momentum behind the price. When the price makes a new high while the MACD fails to do so, this creates a top divergence, which often signals insufficient upward momentum and a potential trend reversal.
In a bull market, MACD bottom divergence is a powerful buy signal. When the price makes a new low while the MACD indicator does not, it indicates that the market may be oversold and the price is about to rebound.
In a bear market, MACD bottom divergence may not be as reliable, as prices may continue to decline; even if bottom divergence occurs, it may not stop the downtrend.
During the bear market in 2020, I relied on the bottom divergence signals at the weekly level to accumulate positions in batches. At that time, the price broke below the previous low, but the green energy bars shrank by 70%, clearly indicating that selling pressure had exhausted. I bought in four batches and weathered the last wave of panic selling, waiting for the doubling returns brought by the bull market in 2021.
What is truly valuable is that MACD divergence can filter out market noise, revealing the real comparison of bullish and bearish forces hidden behind price fluctuations. This is not some metaphysics, but the true traces of capital games.
02 MACD divergence performance in different market environments
In a volatile market, MACD divergence is most reliable. In a market with a clear trend, the MACD indicator often aligns with the price, making it difficult to see significant divergence; however, in a volatile market, MACD divergence signals are more apparent, allowing for better capture of stock price trend changes.
I have discovered through painful lessons that the reliability of MACD divergence decreases in unclear trend situations. In such cases, I need to combine more market fundamental information and other technical indicators for comprehensive analysis.
Different market environments require different response strategies:
In a bull market, top divergence requires special caution, especially after several consecutive top divergences, indicating a higher probability of stock price decline in the future.
Bottom divergence in a bear market requires more patience, as it may require multiple confirmations to determine the true reversal point.
Divergence signals in a volatile market are frequent, but combined with support and resistance analysis, they often provide trading signals with high accuracy.
Identifying a true trend reversal requires observing whether divergence is accompanied by 'structural resonance.' For example, if MACD top divergence occurs in an upward trend and simultaneously a double top or a trend line is broken, the reliability of such signals will greatly increase.
03 My Three Iron Rules of Practical Combat
Rule One: Three-Cycle Resonance Confirmation
I always adhere to the 'three-cycle resonance' principle: use the 1-hour line to find precise buy and sell points, the 4-hour line to judge trend strength, and the daily line to determine the overall direction. Only when the signals of the three time cycles are consistent will I execute trades.
The importance of this multi-time-frame analysis lies in its help in avoiding being misled by short-term fluctuations. The MACD indicator will give different signals in different time frames; only when the directions of large and small cycles are consistent will the win rate of trades significantly increase.
Rule Two: Energy Bar Threshold Analysis
My second rule concerns the quantitative analysis of energy bars: if the price makes a new high while the energy bar is less than 60% of the previous high, it is likely a trap; while three consecutive green bars exceeding the average by 1.5 times often indicate a true bottom signal.
When the MACD histogram is positive, it indicates that the fast line is above the slow line, signaling an upward trend; when the MACD histogram is negative, it indicates that the fast line is below the slow line, signaling a downward trend. If there is divergence between the MACD and the price line, it signals that a trend reversal may occur.
Rule Three: Mandatory Empty Position Rule
"If I make two wrong calls, I immediately stop for 24 hours"—this is my most important risk control rule. Emotional trading is more deadly than ignorance. After making consecutive wrong judgments, forcing an empty position can help clear the mind and avoid falling into greater losses.
Many novice traders easily make the mistake of overtrading, characterized by the constant urge to buy or sell. They trade continuously without paying attention to trading prospects and risks. In fact, in certain trading strategies, making only a few trades in a week or even a month can yield profits that exceed those from making dozens of trades.
04 The art of position management
I now execute stricter position discipline than technical judgment. When a golden cross occurs, the first position does not exceed 4%, add 3% when breaking key resistance, and add another 3% after confirmation of a pullback. Through this method of building positions in batches, I can seize opportunities while effectively controlling risks.
In the 2024 RWA concept market, I built a position in XRP in batches of 10%, earning a steady six-figure profit. Losses should be clear, and gains should be solid.
Proper capital management is the key to long-term survival. In the highly volatile cryptocurrency market, 'position determines survival' is not an empty phrase. Without reasonable capital management, even the most accurate technical analysis is difficult to be effective.
05 Enhance win rate by combining with other indicators
I never rely solely on the MACD indicator. Combining MACD with other indicators such as volume and RSI can significantly improve judgment accuracy. For example, if the price makes a new high + MACD does not make a new high + RSI does not make a new high, the reliability of the signal will greatly increase with multiple indicators diverging together.
Volume is an important confirmation indicator. High volume accompanying price increases indicates a strong market, meaning that most traders hold a bullish attitude; high volume accompanying price decreases indicates a weak market, meaning that most traders hold a bearish attitude.
Furthermore, market sentiment indicators are also worth paying attention to. The fear/greed index can help us understand the overall emotional state of the market. When extreme fear occurs in the market, it is often the bottom region; while when the market is extremely greedy, it may be near the top.
Real change comes from the three iron rules I gained through hard-earned money: three-cycle resonance confirmation, energy bar threshold analysis, and mandatory empty position rule. They allowed me to build a position in XRP in batches of 10% during the 2024 RWA concept market, steadily earning six-figure profits.
There are no natural winners in the crypto space; the market will always punish those who cannot understand signals and are self-righteous. When the MACD energy bars go against the price trend, the market is already warning you; the key is whether you are willing to listen.
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