Momentum with Stochastic and MACD Trading System

Momentum with Stochastic and MACD Trading System is strategy for swing trading.

Time frame 60 min, 240, min, daily and weekly.

Currency pairs: any.

Forex Indicators:

MACD (12,26, 9).

Stochastic oscillator (5,3,3) eith 20 and 80 levels.

Trading Rules

Buy

When the histogram is above zero level, the currency is on an uptrend.

Then we want it to start declining towards the zero level.

After it nears the zero level, we want it to reverse and go up again.

How should we enter a long (buy) trade?

 First we need to recognize a turning point on the MACD histogram.

This means that the blue histogram bars should be above the zero level,

and then it should start declining. Finally it should reverse and go up

again. 

After we've made sure that conditions are met on the MACD

histogram, we should turn to the Stochastic indicator and see its

position: we need it to be on the oversold area (around level 20); we

want the two lines to cross each other; and we want the lines to face up.

We want at least one of the averages to be below level 20. 

Now is the moment we should determine our exact entry point. The

moment we see the histogram rise again and the stochastic decrease to

the oversold zone, we need to wait for the candlestick that created this

condition to close.

As soon as the candlestick is closed, we should enter this trade.

Let's analyze a long trade example:

In this example we can clearly see that the histogram is facing up again

and that the Stochastic lines have crossed each other on the oversold

level, on their way up.

The histogram is facing up and the stochastic lines have crossed each

other on the oversold zone, level 20.

There’s a very important point I would like to add. It refers to a situation

where the histogram is above level 0 and declines below level 0.  

If it happens (i.e., if it declines below level 0), it has to reverse and

return immediately above this level on the next bar in order for this to

be a valid trade setup.

We place the stop loss 1 pip below our base candlestick, which is the

candlestick where all the conditions have been met.

For Example: 

Here I’ll close the trade in two parts: 80% of the trade will be closed

initially, and then I’ll close the remaining 20%.

First Take Profit Target

My first take profit goal is to set a profit target of a 1:1 ratio between

the stop loss and the take profit.

For example: If I risk 50 pips, my take profit target will be 50 pips. When

the price reaches the first take profit target, I’ll close 80% of this trade.

Second Take Profit Target

After the first part of the trade has been closed, I will move the stop loss

to the breakeven point (that is, I’ll change it to the trade’s opening

price).

The second profit target is twice the stop loss.

For example:  If I’ve risked 50 pips my second profit target is 100 pips.

This is a screen shot of target 2: 

That's it…

Our first take profit target is closed successfully in 80% of trades and the

second profit target is closed with a profit in 45% of trades.

This strategy repeatedly generates impressive returns for me, and I'm

sure that once you master it, you will see the difference in your bottom

line as well.

Sell

When the histogram is below zero level, the currency is on a downtrend.

Then we want it to start declining towards the zero level.

After it nears the zero level, we want it to reverse and go up again.

How should we enter a short (sell) trade?

 First we need to recognize a turning point on the MACD histogram.

This means that the histogram should be below the zero level, and then

it should start rising. Finally it should reverse and go down again.

For example: 

 After we've made sure that conditions are met on the MACD

Histogram, we should turn to the Stochastic indicator and see its

position: we need it to be on the overbought area (around level 80); we

want the two lines to cross each other; and we want the lines to face

down.

Now is the moment we should determine our exact entry point. The

moment we see the histogram fall again and the Stochastic reach the

overbought area; we need to wait for the candlestick that created this

condition to close.

As soon as the candlestick is closed, we should enter this short sell

trade.

This is an example of a short sell trade:

We place the stop loss 1 pip above our base candlestick, which is the

candlestick where all the conditions have been met.

We should add the spread to the stop loss in a short trade, so we place

the stop loss 1 pip+ spread above the high of our base candlestick.

Here I’ll close the trade in two parts: 80% of the trade initially, and then

the remaining 20%.

First Take Profit Target

My first take profit goal is to set a profit target of a 1:1 ratio between

the stop loss and the take profit.

For example: If I risk 50 pips, my take profit target will be 50 pips. When

the price reaches the first take profit target, I’ll close 80% of this trade.

Second Take Profit Target

After the first part of the trade has been closed, I will move the stop loss

to breakeven point (that is, I’ll change it to the trade’s opening price).

The second profit target is twice the stop loss.

For example:  If I’ve risked 50 pips, my second profit target is 100 pips.