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Forex trading strategy #7 (Simple MACD crossover)

Trading with MACD indicator is widely used by Forex traders.
Let's take a glance at the very basis of currencies trading with MACD indicator.

We will need only MACD indicator with standard settings: 12, 26, 9.
Any time frame as well as any currency pair can be used.

Entry rules: When the MACD lines’ crossover appears – enter (or wait for the price bar to close and then enter).
Exit rules: when MACD lines next crossover occurs.

FOREX TRADING SYSTEM


Advantages: very simple approach and can give good profitable entries. Traders may want to change MACD default settings depending on the currency and chosen time frame. For example, traders may test next MACD set ups: USD/CHF MACD (04, 07, 16), EUR/USD MACD (02, 03, 20), GBP/USD MACD (02, 03, 04) for different time frames.

Disadvantages: you will need to sit and monitor it again and again. MACD has little use in sideways trading market. It is also never used alone, but rather in combination with other indicators.

To your trading success!


http://forex-strategies-revealed.com/


how did you get 2 lines to cross with a macd?
my mt4 macd has 3 variables, for example, 12, 26, 9.
the histogram requires two variables 12 and 26 as it is the difference between the 12 and 26 moving averages. the remaining variable, 9, is the 9-period moving average of the histogram. how do you get two lines? i have only seen one line in addition to the histogram.
please keep up the very good work with this site!

Yes, your description is correct.
With standard settings (12, 26, 9):

MACD's first (blue) line shows the difference between the two moving averages: 26 and 12-day EMA. The second (grey) line - is simply a 9 EMA of the MACD and it works as a signal line providing signals for short/long entries. Same 9 EMA is used to draw a histogram.

So, basically entry rules for this strategy can be rephrased to:
Entry on the cross of MACD's zero line according to the histogram...

In case you would like to have this second line - just set 9 EMA on the top of your MACD. You'll get the same picture of two lines.

Regards,
Edward.

Most, maybe all, of your strategies are for longer time frames - which is great in that it allows one to set and forget and have a life. But here is a simple GBP, 5-minute chart, strategy to check out.

On a 5-minute chart set MACD to (10,26,1). The "1" just follows the histogram curve and so disappears. You are only interested in the difference between the 10 and 26 MAs. Set levels on the MACD to +8 pips and -8 pips.

When the MA's separation on the 5-min is +8 pips, go long with an 18 to 20 pip target. Seems to work 80% of the time and happens every other day.

Thanks for the new one!
Your contribution is greatly appreciated!

Regards,
Edward.

P.S. I'll focus my team colleagues onto covering some of the short time frame trading systems.

Hi Edward.
Complements of the season. As you can guess, i'm new to this site and all your posts have been most useful. I really appreciate your kind words and your personal show of concern. Thank You.
Pls how do i get 2 lines in my MACD indicator window. The platform is mt4 with the standard 12,26,9 settings. I saw your last comment on this issue which goes thus:
"In case you would like to have this second line - just set 9 EMA on the top of your MACD. You'll get the same picture of two lines."
Where do you refer to as top of the MACD?
Thank You Edward.
Best Regards,
Gift.

Hi Gift,
Seasonal greetings to you as well and to all our users!
By suggesting to set EMA on top of the MACD I meant to put EMA indicator on the same pane/area with MACD, join them together.
I tested MT4 platform, but I wasn't able to make EMA appear on the same spot with MACD...
I'm very sorry, don't know the solution yet. Some other platforms, however, allow doing this.

Best regards,
Edward.

Hi Edward,
This site looks very usefull for everyone. Thanks for the good work. This default MACD strategy works well in range bound market on 1, 3,5 min charts, but fails dangerously when it is sideways or consolidating. How do we filter these consolidations, so that we avoid these, eapecially important if you are auto-trading.

Is there any filters or indicators to avoid these consolidations and participate only during breakouts.

Thanks in advance.
fxtrader

Hi fxtrader,

Filtering out consolidation periods is a wide open question.
Probably some indicators can be used, but I'd like to discuss alternative solutions:
1) consolidation around Pivot points
2) consolidation during certain hours
3) consolidation after failing to exceed previous high or low.

1. If you have an automated system, set a profit target or take partial profits at Pivot levels (especially during first morning hours EST). Add an additional indicator (20 EMA, Parabolic Sar standard settings, etc) to confirm MACD signal when trading around pivot points. Use daily and weekly pivots.

2. During certain market hours price often coils up for a while. By simply looking at past days you may identify most common areas/hours of consolidating activity for a chosen currency pair, and, if it is an automated system, tell it not to initiate orders during those hours (or you may even calculate an average trading range for those consolidation period and tell a system to open an order if certain amount of pips was made and price broke though previous high/low + a confirmation from MACD is received).

3. How consolidation starts? The price simply fails to make another high (exceed a previous high) and on the way down it also fails to make a new low (register lower than a previous low). After those two consecutive "failures" there is a high chance for consolidation to form. By simply noticing support and resistance areas (lowest low and highest high price that hasn't been breached yet) a trader may set a command to buy/sell on the break of those levels with a confirmation from MACD.

Best regards,
Edward