MACD Combo Trading is based on
two slow simple moving averages and MACD oscillator.
Time Frame 30 min or higher.
Currency Pairs: majors.
Forex indicators setup:
50 simple moving average, close;
100 simple moving average, close;
MACD (12, 26, 9)
Trading Rules
Buy
Wait that 50 SMA crosses upward 100
SMA.
When the price has broken of 10 pips
the SMA enter a buy order if MACD histogram is above of zero line.
Initial stop loss 30-50 pips below the
entry bar. Move stop loss at breakeven and close all when the price
breaks below the 50 SMA by 10 pips.
Sell
Wait that 50 SMA
crosses downward 100 SMA.
When the price has
broken of 10 pips the SMA enter a sell order if MACD histogram is
below of zero line.
Initial stop loss
30-50 pips above the entry bar. Move stop loss at breakeven and
close all when the price breaks above the 50 SMA by 10 pips.
Trading Examples
In the first
example EUR/USD on 60 min chart. when the price crosses above both
the 50- SMA and 100-SMA. However, we do not enter since MACD crossed
to the upside more than five bars ago, and we prefer to wait for the
second MACD upside cross to get in. The reason why we have this rule
is because we do not want to buy when the momentum has already been
to the upside for a while and may therefore exhaust itself. The
second trigger occurs a few hours later at 1.1945. We enter the
position and place our initial stop at the five-bar low from entry,
which is 1.1917. Our first target is two times our risk of 28 pips
(1.1945-1.1917), or 56 pips, putting our target at 1.2001. The target
gets hit at 11am EST the next day. We then move our stop to breakeven
and look to exit the second half of the position when the price
trades below the 50-hour SMA by 10 pips. This occurs on March 20,
2006, at 10am EST, at which time the second half of the position is
closed at 1.2165 for a total trade profit of 138 pips.
The next example
is for USD/JPY on a daily time frame. The trade sets up on September
16, 2005,
when the price
crosses above both the 50 and 100 SMA. We take the signal
immediately
since the MACD
crossed within five bars ago, giving us an entry level of
approximately 110.95.
We place our
initial stop at the five-bar low of 108.98 and our first target at
two times risk, whichcomes to 114.89. The price is hit three weeks
later on October 13, 2005, at which time we move our stop to
breakeven and look to exit the second half of the position when the
price trades belowthe 50 SMA by 10 pips. This occurs on December
14, 2005 at 117.43, resulting in a total trade profit of 521 pips.
One thing to keep in mind when using daily charts: although the
profits can be larger, the risk is also higher. Our stop was close to
200 pips away from our entry. Of course, our profit was 521 pips,
which turned out to be more than two times our risk. Furthermore,
traders using the daily chartsto identify setups need to be far more
patient with their trades since the position can remain open for
months.
On the short side,
we take a look at the AUD/USD on hourly charts back on March 16,
2006. The currency pair
first range trades between the 50- and 100- SMA. We wait for the
price to break
below both the 50-
and 100- moving averages and check to see if MACD at the time
went negative less than five bars ago. We see that it did, so we go
short when the price moves 10 pips lower than the
closest SMA, which in this case is the 100- SMA. Our entry price
is 0.7349. We place our initial
stop at the highest high of the last five bars or 0.7376. This places
our initial riskat 27 pips. Our
first target is two times the risk, which comes to 0.7295. The target
gets triggered seven hours later,
at which time we move our stop on the second half to breakeven and
look to exit it when the
price trades above the 50- SMA by 10 pips. This occurred on March
22, 2006, when the price
reached 0.7193, earning us a total of 105 pips on the trade. This is
definitely an attractive return
given the fact that we only risked 27 pips on the trade.
In this example on
daily chart EUR/JPY On April 25, 2005, we saw EUR/JPY break below
the 50-day and 100-day SMA. We check to see that the MACD is also
negative, confirming that momentum has moved to the downside. We
enter into a short position at 10 pips below the closest moving
average (100-day SMA) or 137.76. The initial stop is placed at the
highest high of the past five
bars, which is 140.47. This means that we are risking 271 pips. Our
first target is two times risk (542
pips) or 132.34. The first target is hit a little more than a month
later on June 2, 2005. At this
time, we move our stop on the remaining half to breakeven and look to
exit it when the price trades
above the 50-day SMA by 10 pips. The moving average is breached to
the top side on June 30, 2005,
and we exit at 134.21. We exit the rest of the position at that time
for a total trade profit of 448
pips.
MACD Combo
Trading as with many trend-trading strategies, they work best on
currencies or time frames that trend well. Therefore, it is difficult
to implement this strategy on currencies that are typically range
bound,
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