Market News Headlines.
4 Hour MACD Forex Strategy Welcome to the 4 Hour MACD Forex Strategy. This strategy is aimed at simplicity as well as high probability trades. I have been in the equity market for almost ten years now and in the forex market for two years. I learned very early that. The letters M.A.C.D. is abbreviation for Moving Average Convergence Divergence. The MACD indicator, which requires Moving Averages as its input, falls into the group of the lagging indicators. The basic function of the MACD Forex indicator is to discover new trends and to .
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. In this strategy, the trader wants to first 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. 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 place , trading 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.
The picture below will illustrate a classic case of Bullish Divergence. Any time frame chart with MACD applied default inputs of 12,26, and 9. 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 Swings , by incorporating price action into the trade management.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Take a free trading course with IG Academy. Our interactive online courses help you develop the skills of trading from the ground up. Develop your trading knowledge with our expert-led webinars and in-person seminars on a huge range of topics. A demo account is intended to familiarize you with the tools and features of our trading platforms and to facilitate the testing of trading strategies in a risk-free environment.
Results achieved on the demo account are hypothetical and no representation is made that any account will or is likely to achieve actual profits or losses similar to those achieved in the demo account.
Conditions in the demo account cannot always reasonably reflect all of the market conditions that may affect pricing and execution in a live trading environment. Price action and Macro. Please enter valid email. Please fill out this field. The green circle shows the moment when the faster MACD line crosses the signal line in the bullish direction.
The price action increases afterwards. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions.
In the green rectangle on the image above you see a case where the fast MACD line gains a relatively big distance from the red signal line. This indicates an oversold MACD signal. The price of the Forex pair increases afterwards. As you see, the MACD indicator is pretty rich on technical signals, and is a very versatile trading tool. You can also trade effectively by using MACD in combination with price action analysis. The indicator is attached at the bottom of the price graph.
The image starts with a bearish divergence between the price action and the MACD indicator. As you see, the price creates higher highs, while the tops of the MACD indicator are decreasing blue. The two MACD lines cross afterwards and the price drops. Then we see four more price swings related with bullish and bearish MACD crossovers. Every time the two lines cross we see a price swing in the direction of the crossover.
In this case, the price decreases after a bearish MACD crossover. However, 7 periods later we see a potential oversold MACD signal. The MACD line gains a significant bearish distance from the signal line. This implies that the Forex pair may be oversold and ready for a bounce. As you see, the price increases afterwards. Keeping in mind the six technical signals we discussed above we can divide the trade entry rules of the MACD indicator with the two types: When you open a trade using a MACD analysis, you will want to protect your position with a stop loss order.
To place your stop loss order effectively, you should refer to the chart for previous price action swing points. If you are opening a long trade, you could place your stop loss below a previous bottom on the chart. If you trade short, then you could place your stop loss order above a previous top.
If the price action creates a lower low on a long trade, or higher high on a short trade, your position will be closed automatically. One way to exit a MACD trade is to hold until you receive an opposite signal.
So a contrary MACD signal would be your signal to close out your trade. However, there are many other ways to manage your trade based on your personal preferences. The image shows a couple of trades on the chart that incorporates the MACD lines and histogram. The first trading signal comes when the price action creates an Inverted Hammer candle pattern after a decrease. A few periods later we see that the MACD lines create a bullish crossover. These are two matching bullish signals, which can be a sufficient premise for a long trade.
A stop loss order should be placed below the bottom created at the moment of the reversal , as shown on the image. This would have been an optimal exit point. After the creation of the last high, we see a reversing move, followed by a trend line breakout. At the same time, the MACD lines cross in bearish direction. These are two separate exit signals, which unfortunately come a bit late.
If you closed the trade here, the trade would still have been slightly profitable. One thing to note is that the trend line breakout and the bearish MACD crossover generate matching short signals on the chart, meaning that this could provide for a short trade opportunity. The price starts decreasing afterwards with the creation of a new bearish trend.
The MACD lines decrease as well. After a 6-day decrease, the two MACD lines create a higher bottom, while the price action is still decreasing. This creates a bullish MACD divergence on the chart.
As such, you should exit the trade when the MACD lines cross upwards. This happens just a couple periods later, confirming the Bullish Divergence pattern. Divergence trading is one of the most popular and effective Forex strategies.
The basic function of the MACD Forex indicator is to discover new trends and to help identify the end of current trends. The stop loss on the trade should be located below the Hammer Reversal candle as shown on the image.
It's not recommended to use this strategy on the real account without testing it on demo first.