MACD Momentum Forex Trading Strategy

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MACD Momentum Forex Trading Strategy

Trading is about probabilities. It is about having good odds that price would head towards the direction of your trade. It is about winning more often than losing. It is about gaining more when you win and losing less when you lose. But how is it done?

In trading, increasing odds of being right is done by confluence. This is having a couple or more signs indicating that price is heading a certain direction.

Now, no trade setup would be perfect. There is no point in having all the indicators available to point to the same direction. It occurs very seldomly, living you with very few trade setups, and still it doesn’t guarantee a winning trade. What you need is a system having a few items, whether it be price action or indicators, that work together, increasing the odds of your trade setups.

This strategy is one of them. It would be using just three indicators that determine the medium-term trend and allows you to stay with the trade until one of them points the other way.

Trading Strategy Concept

This strategy would be employing the 100-period Exponential Moving Average (EMA) as the main trade direction filter. Trades would only be taken based on where price is in relation to the 100 EMA. For example, if price is above the 100 EMA, then we will be looking to buy. If it is below the 100 EMA, then we will be looking to sell.

Next, we will be using the Momentum indicator. This is a built-in indicator on every MT4 platform. The Momentum indicator is an oscillating indicator that determines the speed of prices movement towards a certain direction. Signal are generated whenever the indicator crosses over the 100 level, which is its midpoint. If price crosses to the upside, then that would be a buy signal. If price crosses to the downside, then that would be a sell signal. However, the Momentum indicator is a bit jagged. This makes it prone to whipsaws. This is where our next indicator will be coming in.

Lastly, we have the Fratelli_MACD custom indicator. The MACD is also an oscillating indicator that determines prices trend. However, for this strategy, instead of applying it on price, we will be applying the MACD on the Momentum indicator itself. This particular MACD plots dots to indicate trade direction. It prints lime dots for buy signals and magenta dots for sell signals. Signals are also generated with the crossover of the midline of the Momentum indicator.

Indicators:

  • 100 EMA (gold)
  • Momentum: 28-period (dodger blue)
  • Fratelli_MACD

Timeframe: 5-minute to 4-hour charts

Currency Pair: any

Trading Session: Tokyo, London, New York

Buy (Long) Trade Setup

Entry

  • Price should be above the 100 EMA
  • The Momentum indicator’s dodger blue line should cross above the 100 level
  • The Fratelli_MACD should print a lime dot above the 100 level
  • Enter a buy market order on the confluence of the above rules

Stop Loss

  • Set the stop loss below the swing low support

Exit

  • Price crosses below the 100 EMA
  • The Momentum indicator crosses below the 100 level
  • The Fratelli_MACD prints a magenta dot
  • The Fratelli_MACD crosses below 100

Sell (Short) Trade Setup

Entry

  • Price should be below the 100 EMA
  • The Momentum indicator’s dodger blue line should cross below the 100 level
  • The Fratelli_MACD should print a magenta dot below the 100 level
  • Enter a sell market order on the confluence of the above rules

Stop Loss

  • Set the stop loss above the swing high resistance

Exit

  • Price crosses above the 100 EMA
  • The Momentum indicator crosses above the 100 level
  • The Fratelli_MACD prints a lime dot
  • The Fratelli_MACD crosses above 100

Conclusion

This strategy revolves around the confluence of several indicators that determine the medium-term trend. By having trade signals on the confluence of the three indicators and exiting the trade on the reversal of one of the indicators, trade setups tend to be confirmed before entry and exits are made usually on profit before the actual reversal when floating profits are given back.

This strategy isn’t perfect. It works well on trending environments or during breakouts of a ranging market. However, if this strategy is used on choppy markets, it tends to close at a loss because the market hasn’t rallied enough. However, when used on the right market environment, this strategy would be producing big profits more often.

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