MACD Trend Following Strategy
Step #3: Wait for the MACD line to break above the trendline. (Entry at the market price as soon as the MACD line breaks above)
When the MACD line (the blue line) crosses the signal line (the orange line) it’s an early signal
that a bullish trend might start. However, if trading would be that easy we would all be millionaires, right?
And that’s the reason why our MACD Trend Following Strategy is so unique.
We’re not only waiting for the MACD moving averages to cross over but we also have our other
criteria for the price action to break aka the trend line we drew early.
 |
| MACD Breakout Entry Signal |
This is a clever way to filter out the false signals, but you have to be equipped with the right mindset and have patience until all the piece of the puzzle come together.
If you were to trade just based on the MACD crossover over time you’ll lose money because that’s not a reliable strategy. But if you use the MACD indicator along with other criteria such what this strategy tells you to do, you will find great trade entries on a consistent basis.
Step #4: Use Protective Stop Loss Order. (Place the SL below the most recent swing low)
Now, that you already know how to enter a trade at this point you have to learn how to manage
risk and where to place the SL. After all, a trader is basically a risk manager.
You want to place your stop loss below the most recent low, like in the figure below. But make
sure you add a buffer of 5-10 pips away from the low, to protect yourself from possible false
breakouts.
 |
| Stoploss using MACD indicator |
Did you notice?
The MACD Trend Following Strategy triggered the buy signal right at the start of a new trend and
what is most important the timing is more than perfection. We bought EUR/USD the same day
the bullish trend started.
Now, what this has to do with the SL?
Basically, a good entry price means a smaller stop loss and ultimately it means you’ll lose a lot
less comparing it with the profit potential, so a positive risk to reward ratio.
No comments:
Post a Comment