This is a trend-following system based
on the use of several indicators; two EMAs (Exponential Moving
Averages), and the MACD (Moving Average Convergence Divergence). I
will
also be using the Fibonacci Retracement
tool to help determine support and The EMAs are used as opposed to
the SMAs (Simple Moving Average) because I feel it provides a faster
reaction to the trend. There are three main representations of the
MACD; the “One-lined” MACD, which has one line overlaying the
histogram; the “Two-lined” MACD, which depicts two lines
overlaying the histogram; and the OsMA (short for Oscillator of the
Moving Average), which displays only the histogram. In this system,
we will use the two lined MACD. On the 1-hour chart, this system
requires the use of the two lines of the MACD to help determine the
trend, but on 5-minute chart, it only uses the Histogram. We’ll add
the 7 EMA, 13 EMA and MACD (we’ll use the default settings for MACD
- 12, 26, 9). 7 EMA and 13 EMA Settings:
I. Period: 7 and 13
II. Shift: 0
III. MA Method: Exponential
IV. Apply to: Close.
Find your most recent swing points to
draw your Fibonacci.
Trading rules Two line MACD with
EMA's
Long Trades
1. The 7 EMA needs
to be above the 13 EMA on the 1 hour chart.
2. MACD should be
crossed over to the up side on the 1 hour chart.
3. Find your most
recent swing points and draw your Fibonacci
retracement. Wait
for price to retrace to at least the 38.2% retracement
level and no more
than the 78.6% retracement level on the 1 hour chart.
4. Go to your 5
min chart for entry. Ensure at least one candle on the
M5 timeframe
closes below the 38.2% Fibonacci retracement level. Wait
until the MACD
Histogram forms a new bar above the zero line, then
enter the market
with a buy trade at the close of that candle.
5. Stops and
limits can be based on previous swing highs and lows on
the five minute or
hourly charts. I personally use a 15 to 20 pip stop
based on my entry
point. You have to decide this based on your own
risk/reward
tolerance. Never risk more than what you see as your profit
potential.
Short Trades
1. The 7 EMA needs
to be below the 13 EMA on the 1 hour chart.
2. MACD should be
crossed to the down side on the 1 hour chart.
3. Find your most
recent swing points and draw your Fibonacci
retracement. Wait
for price to retrace to at least the 38.2% retracement
level and no more
than the 78.6% retracement level on the 1 hour chart.
4. Go to your 5
min chart for entry. Ensure at least one candle on the
M5 timeframe
closes above the 38.2% Fibonacci retracement level. Wait
until the MACD
Histogram forms a new bar below the zero line, then
enter the market
with a sell trade at the close of that candle.
5. Stops and
limits can be based on previous swing highs and lows on
the five minute or
hourly charts. I personally use a 15 to 20 pip stop
based on my entry
point. You have to decide this based on your own
risk/reward
tolerance. Never risk more than what you see as your profit
potential.
Fibonacci Retracement
After you have
determined your trend as depicted by the EMAs and the MACD,
you want to look
for your most recent swing points (swing-highs & swing-
lows). A
swing-high is the highest point of the highest candle in a price
movement. A
swing-low is the lowest point of the lowest candle or bar in a
price movement. In
other words, a swing-high candle must be preceded by a
candle that has
its high point lower AND the subsequent candle must also
have its high
point lower. Conversely, the swing-low candle must be preceded
by a candle that
has its low point higher AND the subsequent candle must also
have its low point
higher. The Fibonacci tool is then used to determine a higher
probability
retracement once the swing-low and swing-high are established. A
A few candles
earlier from the chart above, we see that the EMAs came into
bullish alignment,
as well, however, once the Fib tool was applied to the chart,
we see that the
market continued to retrace beyond the 78% level nullifying
the move as seen
below:However, as we patiently waited for market movement, we see that the bullish
trend reaffirmed
(EMAs and MACD re-aligned) and subsequently retraced to
an appropriate
level:
Entry
Short/Sell Trade Examples
The 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
At point C the histogram has gone below the zero line. At point D enter short
The 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
At point C the histogram is above the zero line. At point D enter long at the
Entry
Once the
requirements for determining the trend have been satisfied on the
1-hour chart, I
drop down to the 5-minute chart to pin-point my entry. Only
the MACD Histogram
is used at this time. When a histogram bar pops up from
below the zero
line, this signals a bullish entry. A bearish entry is confirmed
when a histogram
bar appears below the zero. Also, please take note, in my
videos, I often
times refer to the “zero line” as the “water line”.
Remember, the
1-hour chart is used to determine the trend,
and only the 5-min
chart is used for the actual entries.
Below is an
example of a 5-min entry signal:Short/Sell Trade Examples
EURUSD
The 1 Hour ChartThe 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
points are marked
on the chart. Find your most recent swing points to
measure your Fib
retracement from. I have drawn my Fib Line using the most
recent swing
points.
Price has retraced
above 50% and
The 5 Min Chart
At point C the histogram has gone below the zero line. At point D enter short
at the close of
that candle, because the histogram has gone below the zero
line. Point D
marks the entry. Your limit can be the previous swing low on the
1 hour chart or a
pivot point. Your stop can be a previous swing high on the 1
hour chart or a
pivot point. You have to decide that based on your risk vs.
your reward. Price
fell over 100 pips.
Buy/Long Trade
Examples
GBPUSD
The 1 Hour chartThe 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
points are marked
on the chart. Find your most recent swing points to
measure your Fib
retracement from. I have drawn my Fib Line using the most
recent swing
points.
Price has retraced
above 50% At point C the histogram is above the zero line. At point D enter long at the
close of that
candle, because the histogram is above the zero line. The arrow
at point D marks
the entry. Your limit can be the previous swing high on the
1 hour chart or a
pivot point. You have to decide that based on risk vs. reward.
Price went up over
100 pips.
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