Market swings and its erratic behavior often catch many traders off guard, especially those who are new to trading. On the other hand, astute and seasoned traders would be looking for these market swings. In fact, some seasoned traders would only trade on markets with strong market swings. This is because without volatility and market swing traders cannot make any profit.
So, how do you make market swings your friend? We would have to understand that not all market swings are erratic. Although markets could reverse without warning, there are telltale signs that could show us where the market is heading.
Some traders judge trend direction based on price action while others use technical indicators. Both types of strategies will work for different traders. Both have advantages and disadvantages. Price action trading allow traders to take a trade with much less lag compared to those who use indicators. On the other hand, traders who use indicators are less likely to make subjective decision-making mistakes. This is because indicators are hard numbers and data which could easily be incorporated in a trading strategy rule.
The MACD Trend Forex Trading Strategy is an easy to use strategy based on one of the most basic yet very effective technical indicator. It is objective with specific rules that traders could easily follow.
2 Line MACD
Table of Contents
The Moving Average Convergence and Divergence (MACD) is a staple indicator for many traders. It is probably one of the most basic, yet it is also one of the most widely used trading indicator. Technical Analysts use it, institutional “big bank” traders use it, market analysts use it. Why should we not use it as retail traders?
The MACD is an oscillating momentum indicator derived from moving averages. It measures the distance between two Exponential Moving Averages (EMA). It is then displayed as an oscillating line, called the MACD line. Then, another Exponential Moving Average (EMA) is derived from the MACD line. This line would then be called the “signal line”. The MACD Line is then subtracted to the Signal Line and its difference is displayed as a histogram. Positive histograms or a MACD Line which is above the Signal Line indicates a bullish trend direction. On the other hand, negative histograms or a MACD Line which is below the Signal Line indicates a bearish trend direction.
The MACD has many uses. Mean Reversion traders assume that the MACD lines would always come back to the mean. For this reason, they would take the crossover of the MACD line and the Signal Line as a trade signal. Momentum traders on the other hand would take the crossing of the MACD Line from positive to negative or vice versa as a trade signal as this assumes that the trend has reversed based on the reversal of the moving averages which the MACD Line is derived from.
The 2 Line MACD is a modified MACD which is much smoother and tends to produce higher quality trade signals compared to the regular MACD.
The Urovny indicator is a custom indicator which is derived from a modified moving average. It displays two lines colored red and green yellow. These lines are modified moving averages shifted up and down.
The area between the red and green yellow lines act as an area of dynamic support and resistance, depending on where price is located in relation to the two lines. In a trending market condition, price would tend to bounce off this area. However, as with support and resistances, price crossing over these lines could be considered a breakout.
This trading strategy is a simple MACD momentum reversal strategy based on the crossing over of the MACD Line over the midline. However, we will also be using the crossing over of price over the Urovny indicator as an additional confirmation.
This confluence between the momentum reversal of the MACD and the breakout of price over the Urovny lines indicate that the market is reversing.
- Fast MA Period: 18
- Slow MA Period: 36
- Signal MA Period: 12
Timeframe: 15-minutes, 1-hour, 4-hour and daily charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York; preferably the trading session of one of the currencies in the pair when trading on the 15-minute chart
Buy Trade Setup
- Price should cross and close above the red Urovny line indicating a bullish resistance breakout
- The 2 Line MACD indicator should display a positive histogram indicating a bullish trend
- The blue MACD line should cross above zero indicating a bullish trend reversal
- These bullish signals should be somewhat aligned
- Enter a buy order on the confluence of the conditions above
- Set the stop loss on the support level below the entry candle
- Close the trade as soon as the blue MACD Line crosses below the broken red Signal Line
Sell Trade Setup
- Price should cross and close below the green yellow Urovny line indicating a bearish support breakout
- The 2 Line MACD indicator should display a negative histogram indicating a bearish trend
- The blue MACD line should cross below zero indicating a bearish trend reversal
- These bearish signals should be somewhat aligned
- Enter a sell order on the confluence of the conditions above
- Set the stop loss on the resistance level above the entry candle
- Close the trade as soon as the blue MACD Line crosses above the broken red Signal Line
The MACD momentum reversal strategy is a basic strategy used by many traders. In fact, the MACD signal alone should provide a profitable trading strategy if paired with a good trade management strategy. Adding the confirmation of a breakout from the Urovny lines provide an even higher probability trade setup.
This strategy works best when used in a market that has a strong tendency to trend. Avoid using this strategy on the lower timeframes whenever there is low volatility. This strategy also works best when there is a momentum candle prior to the entry candle or a breakout from a diagonal support or resistance has occurred.
Forex Trading Strategies Installation Instructions
MACD Breakout Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
MACD Breakout Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install MACD Breakout Forex Trading Strategy?
- Download MACD Breakout Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select MACD Breakout Forex Trading Strategy
- You will see MACD Breakout Forex Trading Strategy is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
Click here below to download: