How To Use MACD Indicator In Forex Trading: Ultimate Guide For New Traders

What’s up Traders, in this article, we’re going to be talking about using Moving Average Convergence Divergence (MACD) Indicator in Forex Trading. This article discusses what the MACD indicator is and delves into its different aspects. 

Including how to scalp with it, techniques that combine it with other indicators, the optimal indicator settings for a MACD trading strategy, MACD breakouts, MACD patterns, and much more.

This is a crucial indicator and technique when used in conjunction with support and resistance indicators to create a comprehensive and effective plan.

 

What Is Moving Average Convergence Divergence (MACD) and How does it work?

 

• The MACD formula
• The MACD learning for you 
• Relative Strength vs. MACD
• MACD’s limitations
• MACD Crossovers as an example
• Divergence as an example
• Rapid Rises or Falls as an example
• What is mean Moving Average Convergence Divergence (MACD) and How do Traders use this?
• Is MACD considered a leading or lagging indicator?
• What is a MACD Positive Divergence, and What does it mean?

Moving average convergence divergence (MACD) is a trend-following momentum indicator that depicts the relationship between two asset price moving averages. 

The MACD is calculated by subtracting the 12-period EMA from the 26-period EMA.

The MACD line is the result of the calculation. The “signal line,” a nine-day EMA of the MACD, is then placed on top of the MACD line, which can act as a trigger for buy and sell signals. 

When the MACD crosses above its signal line, traders can buy the asset, and when the MACD crosses below the signal line, they can sell (or short) the security. 

Moving average convergence divergence (MACD) indications can be interpreted in a variety of ways, although crossovers, divergences, and quick rises/falls are the most popular.

By subtracting the 26-period exponential moving average (EMA) from the 12-period EMA, moving average convergence divergence (MACD) is determined.

When the MACD crosses above (buy) or below (sell) its signal line, it generates technical signals. Crossover speed is often used to determine whether a market is overbought or oversold.

The MACD indicator tells investors if the price is strengthening or weakening in a bullish or bearish trend.

 

The MACD formula

MACD=12-Period EMA − 26-Period EMA

By subtracting the long-term EMA (26 periods) from the short-term EMA, the MACD is calculated (12 periods). 

An exponential moving average (EMA) is a sort of moving average (MA) that gives the most recent data points more weight and relevance.

The exponentially weighted moving average is another name for the exponential moving average. 

A simple moving average (SMA), which gives equal weight to all observations in the period, reacts less strongly to recent price movements than an exponentially weighted moving average (EWMA).

 

The MACD learning for you 

When the 12-period EMA (indicated by the red line on the price chart) is above the 26-period EMA (the blue line in the price chart). 

The MACD has a positive value (shown as the blue line in the lower chart), and when the 12-period EMA is below the 26-period EMA, the MACD has a negative value (shown as the red line in the price chart). 

The greater the MACD’s distance above or below its baseline, the greater the distance between the two EMAs.

The two EMAs applied to the price chart correlate to the MACD (blue) passing above or below its baseline (dashed) in the indication below the price chart, as shown in the chart below.

The distance between the MACD and its signal line is frequently graphed using a histogram (see chart below). 

The histogram will be above the MACD’s baseline if the MACD is above the signal line. The histogram will be below the MACD’s baseline if the MACD is below its signal line. 

The histogram of the MACD is used by traders to determine when bullish or bearish momentum is high.

Relative Strength vs. MACD

The relative strength indicator (RSI) is used to determine if a market is overbought or oversold based on recent price levels. 

The RSI is a price oscillator that measures average price gains and losses over time. With values ranging from 0 to 100, the default time period is 14 periods.

The MACD evaluates the relationship between two exponential moving averages (EMAs), whereas the RSI monitors price movement in relation to recent highs and lows. 

These two indicators are frequently used in conjunction to give analysts a more comprehensive technical picture of a market.

Both of these indicators reflect market momentum, but because they measure distinct parameters, they can occasionally offer contradictory results. 

The RSI, for example, may display a reading above 70 for a lengthy period of time, indicating that the market is overextended to the buy-side in reference to recent prices, whilst the MACD indicates that the market is still gaining purchasing momentum. 

By displaying divergence from price, any indicator may indicate an impending trend change (price continues higher while the indicator turns lower, or vice versa).

 

MACD’s limitations

One of the most common issues with divergence is that it can often imply a potential reversal, but no real reversal occurs—a false positive. 

The other issue is that divergence does not always predict reversals. In other words, it predicts too many false reversals and too few true price reversals.

When the price of an asset goes sideways, such as in a range or triangle pattern following a trend, “false positive” divergence is common. 

Even in the absence of a clear reversal, a decrease in price momentum—sideways or sluggish trending movement—will cause the MACD to drift away from its preceding extremes and migrate toward the zero lines.

 

MACD Crossovers as an example

When the MACD falls below the signal line, as shown in the chart below, it is a negative indicator, indicating that it may be time to sell. 

When the MACD climbs above the signal line, on the other hand, the indicator offers a positive signal, indicating that the asset’s price is expected to rise. 

To avoid being “faked out” and initiating a position too early, some traders wait for a confirmed cross above the signal line before opening a position.

When crossovers follow the current trend, they are more reliable. Bullish confirmation occurs when the MACD crosses above its signal line after a minor retracement inside a longer-term rise.

Traders would consider a bearish confirmation if the MACD crosses below its signal line after a brief move higher within a longer-term downtrend.

Divergence as an example

A divergence occurs when the MACD creates highs or lows that differ from the price’s corresponding highs and lows. 

When the MACD creates two rising lows that correspond to two falling lows on the price, this is known as a bullish divergence. 

When the long-term trend is still favourable, this is a valid bullish indication.

Even if the long-term trend is negative, some traders will seek for bullish divergences since they can herald a trend change, however this method is less reliable.

A bearish divergence is generated when the MACD makes a series of two falling highs that correspond to two rising highs on the price. 

When a bearish divergence emerges during a long-term bearish trend, it is taken as indication that the trend will continue.

During long-term bullish trends, some traders will look for bearish divergences since they can indicate trend weakness. During a bearish trend, however, it is not as trustworthy as a bearish divergence.

Rapid Rises or Falls as an example

When the MACD rapidly rises or falls (the shorter-term moving average pulls away from the longer-term moving average), it indicates that the security has been overbought or oversold and will soon return to normal levels. 

To confirm overbought or oversold conditions, traders frequently combine this analysis with the relative strength index (RSI) or other technical indicators.

Investors frequently use the MACD’s histogram in the same way as they use the MACD itself. 

On the histogram, positive or negative crossovers, divergences, and quick climbs or decreases can all be seen. 

Because there are temporal disparities between signals on the MACD and its histogram, some expertise is required before selecting which is best in any given case.

 

What is mean Moving Average Convergence Divergence (MACD) and How do Traders use this?

Traders use MACD to spot changes in a stock’s price trend’s direction or severity. 

MACD can appear sophisticated at first look because it is based on extra statistical principles like the exponential moving average (EMA). 

Fundamentally, though, MACD aids traders in determining when recent price movement in a stock may indicate a shift in the underlying trend. 

This information can assist traders in determining whether to enter, add to, or quit a position.

 

Is MACD considered a leading or lagging indicator?

The MACD indicator is a lagging indicator. After all, the data used in MACD is based on the stock’s previous price activity. 

It must “lag” the price because it is based on prior data. Some traders, on the other hand, employ MACD histograms to predict when a trend will change. 

This element of the MACD may be seen as a leading predictor of future trend changes by these traders.

 

What is a MACD Positive Divergence, and What does it mean?

A positive MACD divergence occurs when the MACD does not hit a new low despite the fact that the stock price has reached a new low. 

The term “positive divergence” refers to this as a bullish trading signal. If the stock price makes a new high but the MACD does not, this is known as a bearish indicator and is referred to as a negative divergence.

 

What is the MACD Divergence and How do I Trade it?

 

• An overview of MACD
• Divergence in Trading
• Both entry and exit using the MACD histogram

Gerald Appel established the moving average convergence divergence (MACD) in 1979, and it is one of the most widely used technical indicators in trading. 

The MACD is favoured by traders all over the world for its ease of use and versatility, as it may be employed as a trend or momentum indicator.

Although trading divergence is a common way to use the MACD histogram, its effectiveness as a forecasting tool is dubious. 

Because prior data only includes successful divergence signals, a divergence trade is not as accurate as it appears in hindsight. 

Because the failed divergences no longer appear as a divergence, a visual analysis of historical chart data will not disclose them.

The Moving Average Convergence Divergence (MACD) indicator is a trend-following momentum indicator that depicts the relationship between two price moving averages.

Traders use the MACD to determine whether bullish or bearish momentum is strong in order to determine when to enter and exit transactions.

Technical traders in the stock, bond, commodity, and foreign exchange markets employ MACD. 

 

An overview of MACD

The MACD is a simple indicator with a simple concept. It determines the difference between the 26-day and 12-day exponential moving averages of an instrument (EMA). 

The 12-day EMA is the faster of the two moving averages that make up the MACD, while the 26-day is slower.

Both moving averages employ the closing prices of the period being measured to calculate their values. 

A nine-day EMA of the MACD is also plotted on the MACD chart, and it works as a trigger for buy and sell decisions. 

When the MACD moves above its own nine-day EMA, it delivers a bullish signal, and when it travels below its own nine-day EMA, it sends a sell signal.

The MACD histogram is a beautiful visual representation of the MACD’s difference from its nine-day EMA. 

When the MACD is above its nine-day EMA, the histogram is positive; when the MACD is below its nine-day EMA, the histogram is negative.

If prices are rising, the histogram expands as the pace of price movement increases, and reduces as the rate of price movement slows. When prices are declining, the same reasoning applies.

A good example of a MACD histogram in operation is shown in the chart below:

Because it responds to the pace of price movement, the MACD histogram is the fundamental reason why so many traders rely on it to measure momentum. 

Indeed, most traders use the MACD indicator to identify the strength of a price move rather than to discern the trend’s direction.

 

Divergence in Trading

Trading divergence, as previously discussed, is a classic application of the MACD histogram. 

Finding chart areas where price hits a new swing high or low but the MACD histogram does not, indicating a divergence between price and momentum, is one of the most prevalent setups.

A typical divergence trade is depicted in the chart below:

It’s debatable whether or not a divergence signal can be used as a forecasting tool. 

Because prior data only includes successful divergence signals, a divergence trade is not as accurate as it appears in hindsight. 

Because the failed divergences no longer appear as a divergence, a visual analysis of historical chart data will not disclose them.

Market makers routinely set stops to balance supply and demand in the order flow, causing prices to spike higher or lower. 

A typical divergence fakeout is shown in the chart below, which has confounded many traders over the years:

One of the reasons traders lose money with this setup is that they begin a trade based on the MACD indicator’s signal but exit it based on the price movement. 

Because the MACD histogram is a derivative of price rather than price itself, this strategy is akin to combining apples and oranges in trading.

 

Both entry and exit using the MACD histogram

A trader can utilise the MACD histogram for both trade entry and trade exit signals to reconcile the inconsistency between entry and exit signals. 

To do so, a trader can enter the market with a partial short position. The trader would then only exit the trade if the MACD histogram’s high exceeded the preceding swing high. 

If, on the other hand, the MACD histogram fails to produce a new swing high, the trader increases the size of their initial position, resulting in a higher average price for the short.

Currency traders are in a unique position to profit from this method since the larger the position, the greater the potential profit when the price reverses. 

You can use this approach in the forex (FX) market with any size position and not have to worry about influencing price. 

(For the same usual spread of 3-5 points in the major pairs, traders can conduct transactions as large as 100,000 units or as small as 1,000 units.)

In practise, this approach needs a trader to average up while prices move against them temporarily. 

This isn’t usually regarded as a good tactic. Many trading manuals mockingly refer to this strategy as “adding to your losers.”

The trader has a good justification for doing so in this case: the MACD histogram has indicated divergence, indicating that momentum is weakening and price may shortly turn. 

In effect, the trader is attempting to call the bluff between the apparent strength of recent market action and MACD signals that suggest future weakness. 

Still, a well-prepared trader leveraging the advantages of fixed costs in FX can sustain temporary drawdowns by carefully averaging up the deal until price turns in their favour.

This method is demonstrated in the graph below:

Final Thoughts

Trading, like life, is rarely black and white. Some blindly agreed-upon norms, such as never adding to a loser, can be effectively disregarded to generate tremendous gains. 

Before attempting to secure gains, however, a systematic, methodical approach to breaching these essential money management norms must be devised. 

Trading the MACD histogram instead of the price allows you to trade an old concept: divergence, in a new way. 

The application of this strategy to the FX market, which allows for easy scaling up of positions, makes this concept even more appealing to day and position traders alike.

 

Is using the MACD in Trading Strategies reliable?

One of the most often used technical indicators is the moving average convergence divergence (MACD) oscillator. 

The MACD has both leading and lagging indicators, as well as a moving average trigger line, giving it the adaptability and multifunctionality that traders want.

More importantly, the MACD’s trend-following and momentum-forecasting skills are not hampered by excessive complexity. 

This makes it more accessible to both new and seasoned traders, as well as making interpretation and confirmation easier. 

As a result, many people see it as one of the most effective and dependable technical instruments available.

The MACD can be used on daily, weekly, or monthly price charts, albeit it is not suitable for intraday trading. 

The basic MACD trading method employs two moving averages—one 12-period and the other 26-period—along with a nine-day exponential moving average (EMA) to generate obvious trade signals. 

MACD interpretation is based on the interplay between the two moving averages lines, its own nine-day EMA, and the basic price action.

 

MACD and its uses

When the nine-day EMA crosses the two-moving-averages line, traders can utilise the MACD to indicate line crossovers. 

When the two-moving-averages line on the oscillator crosses above or below the zero centerline, additional signals are created. 

Divergences between the MACD lines and the chart’s price activity can be used to identify weak trends and possible reversals.

Recognize that no technical tool can provide a 100% accurate prognosis. There is no trading technique that can guarantee earnings or completely remove dangers. 

While the MACD has numerous advantages and can assist traders in spotting trend reversals, it is not without flaws and struggles in sluggish situations. 

Overbought and oversold signals are not as powerful as a pure volume-based oscillator because the MACD is dependent on underlying price points. 

Always confirm signals generated by the MACD with other technical tools, as the MACD’s capacity to function in concert with so many other tools is what gives it its reliability.

 

A Double-Cross Strategy with MACD and Stochastic

 

• Combining the Stochastic and MACD indicators
• Using the Stochastic process
• The MACD in action
• Calculation of the MACD
• Including Bullish Crossovers in your Trading
• Genesee & Wyoming Inc.’s Crossovers in action
• The Plan of action
• Particular Points to consider

Any technical trader will tell you that the appropriate signal is required to accurately predict a change in a stock’s price trends. What one “correct” indication can accomplish for a trader, however, two suitable indicators can do better.

The purpose of this is to urge traders to look for and recognise a simultaneous bullish MACD crossing as well as a bullish stochastic crossover, and to use both indicators as trading entry points.

Combining the stochastic oscillator and MACD, two complementing indicators, can provide more information to a technical trader or researcher than just looking at one.

Separately, the two indicators operate on different technical premises and perform independently; the MACD is a more trustworthy option as a solitary trading indicator than the stochastic, which ignores market jolts.

The stochastic and MACD, on the other hand, make an excellent duo and can help you trade more effectively.

 

Combining the Stochastic and MACD indicators

The stochastic oscillator and the moving average convergence divergence were chosen as a pair after searching for two popular indicators that function well together (MACD). 

Because the stochastic compares a stock’s closing price to its price range over time, and the MACD is the construction of two moving averages diverging from and converging with one other, this team works. 

If employed to its greatest extent, this dynamic combination is extremely successful.

 

Using the Stochastic process

The stochastic oscillator has a long history of inconsistencies. George C. Lane, a technical analyst who researched stochastics after joining Investment Educators in 1954, is widely credited as the inventor of the stochastic oscillator. 

Lane, on the other hand, provided contradictory comments about the stochastic oscillator’s conception. 

It’s probable that it was invented by Ralph Dystant, the then-head of Investment Educators, or possibly a distant relative of someone within the company.

Between Lane’s debut at Investment Educators in 1954 and 1957, when Lane claimed the copyright for the oscillator, a group of analysts most likely devised it.

The stochastic oscillator is made up of two parts: the percent K and the percent D. 

The percent K is the main line that represents the number of time periods, and the percent D is the percent K’s moving average.

Understanding how the stochastic is created is one thing; knowing how it will react in certain conditions is crucial. Consider the following example:

*When the percent K line falls below 20, the stock is considered oversold, and a buying signal is sent.

*If the percent K peaks just at 100 and then begins to decline, the stock should be sold before it falls below 80.

*In general, if the percent K value rises above the percent D value, this crossover indicates a buy signal, as long as the numbers are less than 80. The security is termed overbought if they are over this value.

 

The MACD in action

The MACD is a versatile trading indicator that can reveal price momentum and can be used to identify price trends and direction. 

The MACD indicator is powerful enough to stand on its own, but its forecasting ability is limited. 

When used with another indicator, the MACD can significantly increase a trader’s edge.

Overlaying a stock’s moving average lines onto the MACD histogram is extremely beneficial for determining trend strength and direction. The MACD can simply be seen as a simple histogram.

 

Calculation of the MACD

A simple MACD calculation is necessary to bring in an oscillating indicator that fluctuates above and below zero. 

An oscillating indicator value is calculated by subtracting a security’s price’s 26-day exponential moving average (EMA) from its 12-day moving average. 

The comparison of the two lines (the nine-day EMA) provides a trading picture after a trigger line (the nine-day EMA) is introduced. 

A bullish moving average crossing occurs when the MACD value is greater than the nine-day EMA.

It’s worth noting that the MACD can be used in a number different ways:

*The most important thing to look for is divergences or a crossover of the histogram’s centre line; the MACD shows purchase chances above zero and sell possibilities below.

*Another thing to keep in mind is the crossovers of the moving average lines and their connection to the centre line.

 

Including Bullish Crossovers in your Trading

The term “bullish” must be defined in order to understand how to incorporate a bullish MACD crossover and a bullish stochastic crossover into a trend-confirmation method. 

Bullish, in the most basic sense, refers to a strong signal that prices will continue to rise. 

When a faster-moving average crosses up over a slower-moving average, it creates market momentum and suggests more price gains, which is known as a bullish signal.

*When the histogram value is above the equilibrium line, and the MACD line is bigger than the nine-day EMA, also known as the “MACD signal line,” this is referred to as a bullish MACD.

*The bullish divergence of the stochastic happens when the percent K value exceeds the percent D, indicating a potential price turnaround.

 

Genesee & Wyoming Inc.’s Crossovers in action

An example of how and when to employ a stochastic and MACD double-cross may be found below.

Note the green lines indicating when these two indicators moved in lockstep, as well as the near-perfect cross on the chart’s right side.

You may see a few instances where the MACD and stochastics are on the verge of crossing at the same time, such as January 2008, mid-March, and mid-April. 

On a chart this huge, it even appears that they crossed at the same time, but closer inspection reveals that they did not cross within two days of each other, which was the condition for putting up this scan. 

You might wish to adjust the parameters to include crossings that occur over a longer period of time in order to catch moves like the ones seen below.

Changing the setup parameters might help a trader create a longer trendline, preventing a whipsaw. 

Higher values in the interval/time-period settings are used to achieve this. “Smoothing things out” is a term used to describe this process. 

Active traders, on the other hand, employ significantly shorter timeframes in their indicator settings, such as a five-day chart rather than a chart containing months or years of price history.

 

The Plan of action

To begin, look for bullish crossings that happen within two days of one another. 

When using the stochastic and MACD double-cross method, the crossover should occur below the stochastic’s 50-line in order to catch a lengthier price move. 

And, ideally, within two days of placing your trade, the histogram value should be or rise higher than zero.

It’s also worth noting that the MACD must cross slightly after the stochastic, as failing to do so could result in a deceptive indicator of the price movement or a sideways trend.

Finally, trading companies that are trading above their 200-day moving averages is safer, but it is not required.

 

Particular Points to consider

This technique has the advantage of allowing traders to wait for a better entry point on an up-trending stock or to ensure that any downtrend is actually reversing when bottom-fishing for long-term holds. 

Where charting software allows, this method can be incorporated into a scan.

Every advantage that any plan has always comes with a disadvantage. 

Because it takes longer for a stock to line up in the optimum purchasing position, real trading occurs less frequently, so you may need a larger basket of stocks to keep an eye on.

The stochastic and MACD double-cross allows the trader to adjust the intervals, allowing them to locate the most optimal and consistent entry points. 

It can be tailored to the demands of both active traders and investors in this way. 

Experiment with both indicator intervals to see how the crossovers line up differently, and then pick the number of days that best suits your trading strategy. 

You might also wish to throw in a relative strength index (RSI) indicator for good measure.

 

The MACD trading strategy’s indicator settings

The MACD indicator has a lot of distinct properties. The following are the most important:

*There are two types of MA: quick and slow. The histogram will show more fast changes if the difference between their periods is higher. 

Most of the time, you’ll leave these settings alone (though some specific strategies require other parameters).

*The MACD SMA is a setting within the MACD moving average. The average will move further away from the histogram when this value is increased, which means they will intersect less frequently. There will be less signals if the parameter value is increased.

*After that, you must set the candlestick’s maximum and lowest values, as well as the open and close values.

*Last but not least, there are the minimum and maximum values.

Different methods will require different characteristics, such as levels. Let’s have a look at how to utilise the MACD indicator and what the optimum MACD indicator settings are for day trading.

 

The most basic MACD strategy

The Signal Line Crossover, or MACD crossover trading strategy, is a simple MACD trading approach. 

This strategy excels in markets with significant trends, such as 2x and 3x ETFs and technology equities.

The Signal Line is simply a 9-period EMA of the MACD Line. It follows the creation of the MACD line because it is a MACD line average. 

When the MACD line turns upwards and crosses beyond the signal line, it is called a bullish crossing.

When the MACD turns downward and passes under the signal line, it is considered a bearish crossover. 

When this happens, you’ll want to make sure both lines travel as far apart as possible. This could indicate that the price’s momentum will continue in the intended direction.

A frequent MACD trading method is to use the MACD to look for a crossover.

 

Intraday Trading MACD indicator settings

With the default parameters, the MACD can be utilised for intraday trading (12,26,9). We can build a system with one of the greatest MACD settings for intraday trading that works well on M30 if we adjust the values to 24,52,9. The following indicators are used in the intraday trading system:

• SMMA stands for Smoothed Moving Average (365, close)
• MACD (Moving Average Convergence (24,52,9)
• Percentage Range of Williams (28)
• Indicator of Admiral Pivot Point (D1)

The strategy is suited for trading key Forex currency pairings such as EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, and other currency pairs such as GBP/JPY, AUD/JPY, USD/JPY, NZD/JPY, and GBP/NZD on 30-minute time frames.

The following are the rules:

Long positions:

• The cost should be higher than the SMMA.
• The MACD line should be below zero.
• From below, the William percent Range should be reaching -80.

Short positions:

• The cost should be less than the SMMA.
• The MACD line should be above zero.
• From above, the William percent Range should be crossing -20.

The MACD is employed in a completely different way using the optimum MACD settings for day trading than what you might have read on the internet. 

The reason for this is that the MACD is an excellent momentum indicator that can accurately detect retracement.

Remember the basic premise of trading: we buy when the price has dropped in an uptrend, and we sell when the price has rallied in a downtrend. 

This is precisely what the MACD is indicating – when the price is ready to be sold and/or purchased. This method should make trading with the MACD a lot easier.

 

The Forex Trading Strategy 50 MACD+CCI

The Forex trading strategy 50 macd+cci is another name for this technique. In Forex, it can be combined with the MACD or with another instrument. 

In summary, you’ll need to memorise a few easy exit rules when using this technique. The CCI is the most important indicator in this method. 

Keep an eye out for the CCI crossing over the zero levels and going in the opposite way, then manually close your position.

For example, when the CCI crosses the zero levels, moving into the negative area after being positive, a long trade is closed using this approach. 

Short positions are closed when the CCI crosses from negative to positive territory, past zero, signalling the conclusion of the bearish trend.

The 50 MACD+CCI forex trading technique is similar to the other trading systems I’ve presented. 

To minimise risk, keep in mind that every strategy must be accompanied by effective risk management based on extensive knowledge and experience.

 

Using the MACD indicator for Scalping

The optimum MACD settings for day trading can be found in a variety of configurations. 

The MACD will be used on a variety of settings in this scalping technique. 

The Stochastic Oscillator is used in this method. It’s also known as a MACD and Stochastic trading method by some traders. 

The goal of employing the MACD in this manner is to capture a longer-term trend for successful 5m scalping.

Indicators:

• EMA 34 (Blue)
• EMA 55 
• MACD (Moving Average Convergence (34,89,34)
• Overlayed Stochastic Oscillator (8,1,3 and 13,1,3)
• H1 has been set for Admiral Pivot (requires MT4SE)

Time limit: 5 minutes

EUR/USD (the focal point), GBP/USD, GBP/JPY, USD/JPY, AUD/USD, EUR/JPY, USD/CHF

Entries that are lengthy:

• The Blue 34 EMA must be higher than the Red 55 EMA.
• The MACD line should be above zero.
• At least one of the Stochastics should have recently oversold at the 20 level and should be crossed higher.
• Admiral Hourly PP is the target.

Entries that are brief:

• The Blue 34 EMA needs to be lower than the Red 55 EMA.
• The MACD line should be below zero.
• At least one of the Stochastics should have recently oversold at the 20 level and should be crossed higher.
• Admiral Hourly PP is the target.

 

Breakouts in the MACD

The MACD breakout is utilised to confirm the trend direction of Admiral Pivot breakouts. 

The MACD can be utilised as a filter and an exit confirmation for this breakout system using the finest MACD settings for day trading.

Indicators:

• D1 Admiral Pivot (requires MT4SE)
• 50-point moving average exponential (50 EMA)
• Exponential moving average of 200 (200 EMA)
• MACD (Moving Average Convergence Diverg (12, 26, 9)

Only trade breakouts in the direction of the trend. Two exponential moving averages (EMAs) identify the trend. If the 50 EMA is greater than the 200 EMA, the trend is up. If the 50 EMA is lower than the 200 EMA, the trend is down.

 

How do I make a Bollinger Bands and MACD Trading Strategy?

To construct trading methods, technical traders use a variety of indicators. Many of these methods can also be beneficial to average investors. 

You can construct a lucrative trading strategy employing indicators like Bollinger Bands and moving average convergence divergence with a little previous information (MACD).

Bollinger Bands are a series of bands that encircle a security’s moving average and represent standard deviations. 

They were created by technical analyst and trader John Bollinger. Bollinger Bands can be used to build up profitable trades for an asset that regularly moves within a specific range for lengthy periods of time, forming a rectangular pattern on a chart.

On sideways-moving securities, the buy-and-hold strategy yields little reward. You can profit from price variations by purchasing at or near the lower Bollinger Band and selling at or near the upper Bollinger Band using limit orders. 

Swing trading is the term for this type of trading method. Adjust the Bollinger Band parameters to a smaller standard deviation of one instead of the standard two to customise your risk level using this technique.

MACD is commonly used to determine if an asset is overbought or oversold, prompting traders to employ methods that anticipate a trend reversal. 

Trading divergences is a popular trading method that makes use of the MACD’s strength. 

Sell your long positions or enter short positions when you notice fresh highs in the security’s price but not on the MACD, as this signals that the momentum behind the higher prices is receding and prices will soon adjust.

 

Final words

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