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Showing posts with label MACD trend following strategy. Show all posts
Showing posts with label MACD trend following strategy. Show all posts

Wednesday, February 14, 2018

MACD Trend Following Strategy Final Part

MACD Trend Following Strategy


Step #5: Take Profit when the MACD crossover happens in the opposite direction of our entry


Knowing when to take profit is as important as knowing when to enter a trade. However, we want to make sure we don’t use the same trading technique as for our entry order. When the MACD line (the blue line) crosses the signal line (the orange line) we want to close the position and take full profits. 

macd profit taking
When to take profit

Before taking profits, it’s important to wait for the candle close – either the 4h or the daily
candle – depending on the time frame you trade so you make sure the MACD crossover actually
happens.

Note** The above was an example of a buy trade using the MACD Trend Following Strategy. Use the exact same rules – but in reverse – for a sell trade. In the figure below you can see an actual SELL trade example using the MACD Trend Following Strategy.


Take a look: 

MACD short sell indicator
Shorting using MACD

We’ve applied the same Step #1 and Step#2 to help us draw the trendline and followed Step #3
to trigger our trade.

Conclusion:

The MACD Trend Following Strategy is a very simple trend following strategy and yet a very
profitable strategy at the same time. 

As the saying goes, “The trend is your friend” and no matter if you’re just starting as a Forex trader or you’re already an established trader life is much easier when trading in the direction of the line of least resistance rather than fighting the trend which is a loser's game.

The success behind the MACD Trend Following Strategy is derived from one simple principle: momentum precedes price.


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MACD Trend Following Strategy (Step #3 and #4)

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.

Enter on MACD Breakout signal
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.

MACD stoploss
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.



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MACD Trend Following Strategy (Step #1 and #2)

Rules for A Sell Trade

Step #1: Wait for the MACD lines to develop a higher high followed by a lower high swing point.

First, let’s visualize how an authentic swing point really looks on the MACD indicator:

MACD swing trade
Not a proper swing high

The first rule of thumb to recognize a swing high on the MACD indicator is to look at the price chart if the respective currency pair is doing a swing high the same as the MACD indicator does. 

A higher high is the highest swing price point on a chart and must be higher than all previous swing high points. While a lower high happens when the swing point is lower than the previous swing high point.


swing trade
Higher High and Lower Low

This brings us to the next rule of the MACD Trend Following Strategy.

Step #2: Connect the MACD line swing points that you have identified in Step #1 with a trendline

This step is quite simple, right? 

See below, how you chart should look like after you correctly identified the swing points on the MACD indicator and connected them through a trendline. 

MACD Trendline
MACD Trendline


At this point, we really ignored the histogram because much of the information contained by the
histogram is already showing up by the moving averages. 

Look at the price action now and compare it to our MACD trendline we drew early. We can clearly notice that the MACD contains the price action much better and reflects the trend much clear.

But, at this point, we’re still not done with the MACD indicator, which brings us to the critical part
of our MACD Trend Following Strategy.





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Tuesday, February 13, 2018

MACD Indicator Settings

MACD Indicator Settings

What about the indicator setting?

The preferred settings for the MACD indicator are the default settings.

See below image:


MACD indicator settings
MACD Settings

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Monday, February 12, 2018

What is the MACD indicator?

What is the MACD indicator?


The MACD is one of the most powerful trend following and momentum indicator. The MACD is a
commonly used technical analysis indicator and the acronym stands for M​oving A​verage C​onvergence D​ivergence.

To put it simply, any trend following indicator helps you to determine the overall direction of the market, be it uptrend (bullish) or downtrend (bearish). While a momentum indicator seeks to determine the speed and strength of a trend. Put them together and you have the perfect combination for a trend following strategy.

A picture is worth a thousand words, so here is how the classical MACD indicator looks like on a chart:

MACD Histogram indicator
MACD Indicator from Oanda

The MACD can provide earlier indication that an OLD​ trend is about to end and a NEW trend is
about to start. The MACD manipulates its moving averages in a rather clever way and can signal
changes in trend much closer to when they actually occur.

Please have a look at the chart example below to see the power of the MACD indicator.

MACD Crossover
MACD Crossover Examples


So, how does it work?

Well, the MACD’s moving averages and histograms (see chart below) are derived from the price
chart. They are calculated using a formula which adds greater weight to the most recent price
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Intro to MACD Trend Trading Strategy

Intro to MACD Trend Trading Strategy


The MACD Trend Trading Strategy works best on the higher time frames like the 4 hour chart or
the daily chart, and even weekly timeframes. So if you’re a swing trader this is the perfect strategy for you.

We have developed this trend following strategy because we felt people need to know how to properly use the MACD indicator and to show how powerful this indicator can be in market turning points.

One of the most important features of trend following strategies is that even if you’re wrong on the trade, usually you can limit your losses because ultimately the market will reverse and resume the trend. But, at the same time, which is even more important, it maximize the potential profit as well.

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Saturday, February 10, 2018

Blog Introduction

The information contained in this blog is for informational purposes only.

I am not a financial advisor. Any legal or financial advice I give is my opinion based on my
own experience. You should always seek the advice of a professional before acting on
something I have published or recommended.

Please understand that there are some links contained in this blog that I may benefit from
financially.

No part of this publication shall be reproduced, transmitted or sold in whole or in part, or
any form, without the prior written consent of the author.

Visitors of this blog are advised to do their own due diligence when it comes to making
business decisions and all information, products, and services that have been provided
should be independently verified by your own qualified professionals.

By reading and visiting this blog, you agree that myself and my company is not responsible for the success or failure of your trading and investing decisions relating to any information presented in this
guide.

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