Apr 13, · The MACD indicator trading strategy involves making trading decisions based on signals that come from the indicator. The indicator is helpful in recognizing potential price increases and decreases. Traders use the MACD indicator Forex tool to support their Forex strategy and to open trades based on signals. Jan 21, · Review – 4-Hour MACD Forex Trading Strategy. This trading strategy is a momentum trading strategy like the 5-minute MOMO trade and Elder’s Impulse System. MACD is the common denominator of these trading strategies. However, the setting of the MACD indicator in this trading strategy removes its signal line. Dec 21, · 4 Hour Strategy (MACD) Phillip Nel, Looks like a nice strategy you have there. I was reading through your docoment and had just one question for you. On page 18, you mentioned that "you only trade the trades that give signals at , and .
The letters M. The basic function of the MACD Forex indicator is to discover new trends and to help identify the end of current trends. There are various ways to gauge the signals generated by Macd forex strategy, and many traders use their own unique settings and methods around this trading indicator.
The MACD indicator is typically placed Macd forex strategy the bottom of the trading chart, Macd forex strategy, in a separate window, beneath the price chart. The Moving Average Convergence Divergence is a relatively easy-to-use tool, however, it is crucial to understand it fully before attempting to trade using its signals. The MACD indicator consists of three components. There are two lines and a histogram. Below you will see an example of the MACD indicator:. This is a zoomed image of the MACD indicator.
The blue line is the MACD line. The red line is the signal line. As you see, the MACD line is faster and it often breaks the signal line. The gray bars are the histogram, which move in harmony with the distance between the two lines of the indicator.
On most trading platforms, the MACD indicator typically comes with the default parameters 26, 12, and 9. We will interpret the meaning of these three numbers and how they apply to the structure of the indicator, Macd forex strategy. These two numbers concern the calculation of the faster MACD line. The structure of the MACD line comes with calculating a period Exponential Moving Average on the price action and then subtracting a period Exponential Moving Average from the result.
The difference between the two EMAs gives you the value of the faster line. Although the MACD indicator consists only of three components the two lines and the histogram it can provide a myriad of signals. We recognize six basic signals of the MACD and now we will discuss each of these separately. The MACD line is faster than the signal line, Macd forex strategy, and it will typically cross above and below the slower signal line.
Above you see a bullish MACD crossover. The green circle shows the moment when the faster MACD line crosses the signal line in the bullish direction. The price action increases afterwards, Macd forex strategy. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions.
In the green rectangle on the image above you see a case where the fast MACD line gains a relatively big distance from the red signal line. This indicates an oversold MACD signal. The price of the Forex pair increases afterwards. As you see, the MACD indicator is pretty rich on technical signals, and is a very versatile trading tool.
You can also trade effectively by using MACD in combination with price action analysis. The indicator is attached at the bottom of the price graph, Macd forex strategy.
The image starts Macd forex strategy a bearish Macd forex strategy between the price Macd forex strategy and the MACD indicator. As you see, the price creates higher highs, while the tops of the MACD indicator are decreasing blue.
The two MACD lines cross afterwards and the price drops. Then we see four more price swings related with bullish and bearish MACD crossovers. Every time the two lines cross we see a price swing in the direction of the crossover.
In this case, the price decreases after a bearish MACD crossover. However, 7 periods later we see a potential oversold MACD signal. The MACD line gains a significant bearish distance from Macd forex strategy signal line. This implies that the Forex pair may be oversold and ready for a bounce.
As you see, the price increases afterwards. Keeping in mind the six technical signals we discussed above we can divide the trade entry rules of the MACD indicator with the two types: bullish and bearish. When you open a trade using a MACD analysis, Macd forex strategy will want to protect your position with a stop loss order.
To place your stop loss order effectively, you should refer to the chart for previous price action swing points. If you are opening a long trade, you could place your stop loss below a previous bottom on the chart.
If you trade short, Macd forex strategy, then you could place your stop loss order above a previous top, Macd forex strategy. If the price action creates a lower low on a long trade, or higher high on a short trade, your position will be closed automatically. One way to exit a MACD trade is to hold until you receive an opposite signal.
So a contrary MACD signal would be your signal to close out your trade. However, there are many other ways to manage your trade based on your personal preferences. The image shows a couple of trades on the chart that incorporates the MACD lines and histogram. The first trading signal comes when the price action creates an Inverted Hammer candle pattern after a decrease.
A few periods later we see that the MACD lines create a bullish crossover. These are Macd forex strategy matching bullish signals, which can be a sufficient premise for a long trade, Macd forex strategy. A stop loss order should be placed below the bottom Macd forex strategy at the moment of the reversalMacd forex strategy, as shown on the image.
This would have been an optimal exit point. After the creation of the last high, we see a reversing move, followed by a trend line breakout. At the same time, the MACD lines cross in bearish direction.
These are two separate exit signals, which unfortunately come a bit late. If you closed the trade here, the trade would still have been slightly profitable.
One thing to note is that the trend line breakout and the bearish MACD crossover generate matching short signals on the chart, meaning that this could provide for a short trade opportunity. The price starts decreasing afterwards with the creation of a new bearish trend.
The MACD lines decrease as well, Macd forex strategy. After a 6-day decrease, the two MACD lines create a higher bottom, Macd forex strategy, while the price action is still decreasing. This creates a bullish MACD divergence on the chart. As such, you should exit the trade when the MACD lines cross upwards. This happens just a couple periods later, confirming the Bullish Divergence pattern.
Divergence trading is one of the most popular and effective Forex strategies. However, Macd forex strategy, one downside with Divergence is that prices can stay in a divergent formation for quite some time without reversing, and it can sometimes be difficult to know when to enter this type of counter trend setup. Keeping a close eye on emerging price action patterns can be helpful in trading divergences. The image depicts how we might trade a MACD divergence pattern. The image begins with a sharp price drop.
Suddenly the decrease slows down. At the same time, Macd forex strategy, the MACD not only slows down, but it starts increasing, creating a bullish divergence, Macd forex strategy. A bullish MACD crossover appears afterwards. You could have opened the trade based on this signal, Macd forex strategy.
If you did, you would likely have gotten stopped out on this first entry. Shortly after, we get a Hammer Reversal candlewhich provides additional confirmation of the bullish scenario. The stop loss on the trade should be located below the Hammer Reversal candle as shown on the image. You can see that the price creates a few swings while attempting to break in the bullish direction.
However, Macd forex strategy, the stop order is well positioned below the Hammer formation and the trade survives the pressure of the bears. The price starts an increase afterwards. But on the way up we notice that the price action starts creating smaller swings.
Soon after, we discover the Rising Wedge chart pattern on the image. Since the Rising Wedge has a strong bearish potential, a breakdown Macd forex strategy its lower level could be used in combination with a bearish MACD cross to close the trade. In our case, the MACD lines cross downwards right at the moment of the bearish wedge breakout. This is a strong signal that the price might initiate a decrease.
For this reason, the trade should be closed when you receive Macd forex strategy confluent exit signals. You should always be watchful of price action clues when trading MACD divergence. This way you can attain a better understanding of where and when to enter and exit your MACD divergence trades. Download the short printable PDF version summarizing the key points of this lesson….
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Jan 21, · Review – 4-Hour MACD Forex Trading Strategy. This trading strategy is a momentum trading strategy like the 5-minute MOMO trade and Elder’s Impulse System. MACD is the common denominator of these trading strategies. However, the setting of the MACD indicator in this trading strategy removes its signal line. The MACD indicator is one of the most widely used indicators for Forex trading. MACD is an abbreviation for Moving Average Convergence Divergence. It is calculated using Moving Averages, which makes it a lagging indicator. The main function of the MACD is to discover new trends and to help find the end of present trends. The MACD and RSI trading strategy works on the premise that the RSI indicator is used to gauge the market momentum while the MACD oscillator’s histogram is used as a timing indicator. When the two indicators line up, long and short positions can be taken accordingly.