Simple macd trading strategy
As we investigated macd Trading with MACDthe indicator strategy be a very versatile tool for traders in a variety of situations. This article will go over three specific strategies for trading with MACD; from trends and ranges to reversals. Unfortunately, one of the drawbacks of the indicator using default input settings is strategy many of the signals that are generated may not work out the way the trader wants. So while this can be a valuable indicator, it is necessary to enhance the strategy or approach with additional means of determining which signals to take and which to avoid. In this article, we are going to look at 3 different ways that traders can look to utilize the MACD indicator based on the market condition they are looking to trade. Traders can look to filter trends with the period moving average, and taking trades only in the direction of the trend. So - when price is above the period Moving Average - traders are only looking to buy on bullish MACD crossovers of the Signal Line. The chart below will illustrate further:. This strategy can be utilized on any timeframe longer than the hourly chart. Both indicators are built and traded from the same time frame, so no additional work outside of adding the indicators is required of the trader. Take MACD Signals ONLY in the direction of the general trend, as graded by the period Moving Average. Contra-cross of MACD OR price Crossing the period Moving Average. So if trader had taken a long entry with a MACD Buy signal - they would exit the position on either a MACD Sell signal OR price crossing below the period Moving Average. In this strategy, the trader wants to macd grade for ranging market conditions, and this can be done with the ADX indicator. This is the filter for the strategy. If ADX is greater than 30 - then traders do not look to trade this range-based strategy as prevailing trends may be too strong for cogent entries. If, however, ADX is below 30 - then traders can look to take each and every MACD signal that generates from the indicator. Hourly chart with MACD applied, ADX based on the 4 hour chart. Take MACD Signals ONLY when 4 hour ADX reads below Stops and Limits with Limits being set at 2 times the stop amount. Stops and Limits can be obtained by using the 4 hour Average True Range amount. While being one of the most difficult market conditions to trade since it is nearly impossible to predict when a reversal of price may actually take placetrading Reversals is also one of the most attractive to retail traders. With one look at the SSI, and noticing the penchant that many retail traders have for attempting to call tops or bottoms helps illustrate this. Reversals can bring big moves to the trader. They can also bring big losses. Which is precisely why it is so important to use strict risk management when trading in these conditions; and traders should be ready to cut their losses quickly the reversal proves unlikely. In the article, How to Trade MACD DivergenceWalker England shows exactly how this can be done. The picture below will illustrate a classic case of Bullish Divergence. Taken from How to Trade MACD Divergenceby Walker England. Any time frame chart with MACD applied default inputs of 12,26, and 9. Take MACD Signals when Divergence is present. Macd and Limits with Limits being set AT LEAST 2 times the amount of the stop. Stop should be set to the low of the move with Bullish Divergence or the high of the move with Bearish Divergence. Traders may also incorporate a trailing stop, as shown in Trading Trends by Trailing Stops with Price Swingsby incorporating price action into the trade management. To contact James Stanley, please email Instructor DailyFX. You can follow James on Twitter JStanleyFX. 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