MACD trending is very simple. It will allow you to profit from a very specific chart profile. Anyone can use a MACD trend trading strategy to make money. It works time and again, offering a very high number of successful trades.
We will use an example to demonstrate how this type of trading strategy works. For this example, use a 60 minute chart. Remember though, 90 and 120 minute charts are also acceptable.
The first step is to set up the chart. You will be using candlesticks to monitor price action and for signals. You must also put an MACD indicator on your chart with the following settings (12,26,9) – remember, there should be no other indicators on your chart.
You will be using a candlestick as your setup bar to help recognize trading opportunities with this method. We are working with trends in these types of trades. Regardless of whether the trends are moving up or down, the setup works the same way.
The setup bar you are looking for is the latest bar with the most current price. You are looking for a bar where the entire bar is at least twice as long as the body of the bar. For example, the entire bar over the time period covered a span of 100 pips from the highest high to the lowest low in the time period. However, the body of the candle, which is the area that includes the opening and the closing prices, must not exceed 50 pips in order to qualify as setup bar.
There are a large number of bars that fit this description. What you are looking for is volatility during the time frame and not wild price movements.
Next, you need trade confirmation from your setup bar, which requires looking at the bar immediately preceding the setup bar. In an upward trend market you will be looking for the setup bar to have a higher high and a higher low than the previous bar. The color of the trade confirmation bar does not have to be the same, as long as it has a price high that is higher and a price low that is lower than the previous bar.
You must now use the MACD histogram to confirm the trend – this is very simple to do. In an upward trend and in order to buy when placing an order, you must have a minimum of five bars above the zero line. If the setup bar occurs on the fifth line, then this is still a go signal.
Now all the pieces are in place, next you need to determine your entrance, exit and protective stops placement. Place your entry 2 pips above the highest point of the set up bar. You will also place a protective stop a minimum of 5 pips below the set up bar but no more than 10 pips below the lowest point on the set up bar, depending on your risk tolerance and good money management principles.
Now that you have entered the trade and have a protective stop in place you need to determine when to exit the trade. It is always best to exit a buying trade while the market is still rising and to exit selling trades while the market is still falling. Do not attempt to call the exact high or the exact low as this will cost you more money in the long run.
Based on your money management rules, if your potential loss for this trade is 30 pips, you should target a profit of between 60 and 90 pips to exit. So in this case, you will only need to be right between 30% and 50% of the time in order to be successful.
In conclusion, MACD trending is very simple and can be used to profit both effectively and consistently. It is recommended that you practice this strategy using a demo account, until you are sure that you have a complete understanding of entry and exit points. This simple strategy can be used to make a lot of money if watched closely.