Advanced MACD Swing Forex Trading Strategy

0
738
Advanced MACD Swing Forex Trading Strategy1

You might have heard that trading charts are fractal. This means that the same patterns and behaviors occur again and again across different timeframes. To some extent this is true, but there are limitations to this. If it were totally true, then any strategy that would work on the 1-minute timeframe should also work on a daily chart. If you have observed currencies on both charts, you would know that this is not always the case.

Components within a strategy, such as price action, indicators, or filters, should match the timeframes that you are trading on. There are indicators that work well on the 1-minute chart but is totally rubbish on the 5-minute chart. There are also strategies that work on the daily charts and the 4-hour charts but does not make any sense on the 15-minute chart.

Advanced MACD Swing Forex Trading Strategy makes use of a very popular trading indicator that works well for swing trading. It is not perfect, but it does bring in some pips.

Zero Lag MACD

The Moving Average Convergence and Divergence (MACD) is a widely used technical indicator. In fact, many professional technical analysts use this indicator. This is probably why the MACD seems to be very effective on the higher timeframes.

However, even with its effectiveness, the MACD does have an Achille’s heel. It tends to lag too much.

The Zero Lag MACD is a modified version of the MACD. It is tweaked to adjust for the lag in order to provide traders a timelier indication of what the market is doing.

This indicator works much like the regular MACD. It displays a line and histogram bars. The histogram bars represent the traditional MACD line, which is the difference between two moving averages. The line represents the Signal Line, which is a moving average derived from the histogram bars.

Crossovers between the histogram bars and the signal line serve as an early indication of a probable reversal. These crossovers usually occur when the market is overextended based on the MACD indicator. Crossovers of the bars over the midline is another trend reversal signal. It may be a little more delayed compared to the histogram and signal line crossover, but it is more reliable.

ASC Trend

The ASC Trend indicator is a custom indicator which provides trade entry signals based on breakouts. It prints arrows on the price chart to signify an entry signal pointing towards the direction of the trend reversal.

This indicator is very simple yet very effective. Although it is not perfect, it tends to produce an accurate entry signal. It is even more effective when paired with a complementary indicator which could help filter out bad trades.

Trading Strategy

This strategy trades on swing points based on the Zero Lag MACD trend reversal signals.

However, instead of taking every trend reversal signal that is presented, this strategy filters out trades that goes against the flow of the long-term trend. The 200-period Simple Moving Average (SMA) will be used as the long-term trend filter. Trades will only be taken in the direction of the trend based on the 200 SMA. Trend direction is filtered based on where price is in relation to the 200 SMA and the slope of the 200 SMA.

On the Zero Lag MACD, trend reversal entries will be based on the crossing over of the histogram bars from negative to positive or vice versa. On the other hand, trade exits will be based on the reversal of the Signal Line towards the middle of the Zero Lag MACD range. This allows traders to enter on a confirmed trend reversal and exit early at the start of a probable mean reversal.

Finally, the specific entry candle will be based on the ASC Trend indicator. This would allow traders to have an accurate entry, which is confirmed by a momentum-based reversal.

Indicators:

  • 200 SMA
  • ZeroLag MACD (default setting)
  • ASCTrend BO
    • RISK: 9

Timeframe: 4-hour and daily charts only

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should be above the 200 SMA line.
  • The 200 SMA line should be sloping up indicating a bullish long-term trend.
  • The Zero Lag MACD bars should cross above zero indicating a bullish trend reversal.
  • The ASC Trend indicator should print an arrow pointing up indicating a bullish entry signal.
  • These bullish trend reversal signals should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the Zero Lag MACD signal line starts curling down towards the midline.

Advanced MACD Swing Forex Trading Strategy1

Advanced MACD Swing Forex Trading Strategy2

Sell Trade Setup

Entry

  • Price should be below the 200 SMA line.
  • The 200 SMA line should be sloping down indicating a bearish long-term trend.
  • The Zero Lag MACD bars should cross below zero indicating a bearish trend reversal.
  • The ASC Trend indicator should print an arrow pointing down indicating a bearish entry signal.
  • These bearish trend reversal signals should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the Zero Lag MACD signal line starts curling up towards the midline.

Advanced MACD Swing Forex Trading Strategy3

Advanced MACD Swing Forex Trading Strategy4

Conclusion

This trading strategy is one that works very well. It is not perfect, but it does work well. It produces high probability trade setups that would result in a good win ratio.

Although this strategy is very systematic, it would also help to have a confluence of other factors that could support the trade. It could either be breakouts of supports and resistances, confluence with a higher timeframe trend, or divergences. These confluences improve the probability of the trade setups much further.

Although there are times when price would surge resulting in huge gains, there will also be times when the gains are not that big. On these scenarios, it is best to stick to the plan instead of allowing greed to cause you to hold the trade too long.

There are also times when the exit signal from the Zero Lag MACD signal line is a bit too early and could cause traders to exit the trade even before the end of the trend. Conservative traders should exit trades whenever the signal line is showing signs of reversal. However, aggressive traders could opt to hold the trade even longer until it is clear that the market is reversing.

Recommended MT4 Brokers

XM Broker

  • Free $50 To Start Trading Instantly! (Withdraw-able Profit)
  • Deposit Bonus up to $5,000
  • Unlimited Loyalty Program
  • Award Winning Forex Broker
  • Additional Exclusive Bonuses Throughout The Year

XM broker

>> Sign Up for XM Broker Account here <<

FBS Broker

  • Trade 100 Bonus: Free $100 to kickstart your trading journey!
  • 100% Deposit Bonus: Double your deposit up to $10,000 and trade with enhanced capital.
  • Leverage up to 1:3000: Maximizing potential profits with one of the highest leverage options available.
  • ‘Best Customer Service Broker Asia’ Award: Recognized excellence in customer support and service.
  • Seasonal Promotions: Enjoy a variety of exclusive bonuses and promotional offers all year round.

fbs broker

>> Sign Up for FBS Broker Account here <<

Click here below to download:

Save

Save



Get Download Access

LEAVE A REPLY

Please enter your comment!
Please enter your name here