7 MACD Super Trend Forex Trading Strategy

Trend following and trend reversal strategies are good techniques for traders to make money out of the forex market. This is because if the market does trend, trend following traders could earn so much more than the risk they placed on the trade. Identifying such trend reversals may be difficult, however, the yields that traders could gain whenever they get it right is very appealing. Traders may have an accuracy of less than 50% yet could gain profits three to four times more than their average losses, the result would still be a profitable trading account. Traders who could significantly improve on their accuracy while still maintaining a high risk-reward ratio could earn so much more.

One of the ways traders could increase their accuracy with trend reversals is by trading on confluences of high probability trend following indicators. Trend following indicators are basically technical indicators which help traders identify the direction of the trend as well as the potential trend reversal points. Traders may use these trend following indicators to identify trend reversal setups. However, there are also many instances when the market could whipsaw or range even when there are trend reversal signals coming from an indicator. Confluences of such trend reversal signals tend to increase the likelihood of a successful trend reversal. Confluences coming from high probability trend following indicators which are also complementary to each other tend to produce even better results.

In this strategy, we would be looking at two high probability trend following indicators and how their confluences could produce high yielding trend reversal setups.

7 MACD

The 7 MACD indicator is a custom technical indicator which is based on the classic Moving Average Convergence and Divergence (MACD).

The classic MACD is basically an oscillator which computes for the difference between two Exponential Moving Average (EMA) lines. It then plots this line as an oscillator called the MACD line. Then, it also computes for the Simple Moving Average (SMA) of the MACD line, called the signal line. Trend direction and momentum is based on whether the lines are positive or negative, as well as on how the two lines overlap. As such, trend reversal indications are based on the lines crossing over each other and lines crossing over its midline, which is zero.

The 7 MACD indicator on the other hand modifies this method by adding another line which acts as a longer period signal line. The faster line is colored blue, while the slower line is pink. The difference between the two lines is also plotted as a histogram bar, which traders can use to identify crossovers. It also plots the slower moving signal line which color lime.

Traders can now incorporate the crossing over of the two lines and the slow moving signal line as a basis for a long-term trend reversal signal.

Super Trend

The Super Trend indicator is a highly reliable trend following indicator. It is based on an underlying computation of the Average True Range (ATR) and how price action is moving with or against the trend in relation to it.

One of the ways traders identify trend reversals is through the use of an ATR and its multiple. For example, a trader may have a threshold of three times the ATR to warrant a trend reversal. If price action reverses against the trend by more than three times the ATR, the trend is considered to be reversing.

The Super Trend indicator identifies the direction of the trend and plots a line on the price chart which shadows price action. The line is plotted as a lime line below price action whenever it detects a bullish trend, and a red line above price action whenever it detects a bearish trend.

Trend reversals are identified whenever price closes on the opposite side of the line. In this case, the line would shift and change color indicating a trend reversal.

The indicator can be used as a trend reversal indicator based on the shifting of the Super Trend line. It can also be used as a trend direction filter in order to avoid trades taken against the trend. The trailing Super Trend line could also be used as a basis for a trailing stop loss since a price closing on the opposite side of it is considered to be a reversal.

Trading Strategy

7 MACD Super Trend Forex Trading Strategy is a simple trend reversal strategy based on the confluence of the 7 MACD indicator and the Super Trend indicator.

The trend reversal signal on the 7 MACD indicator is simply based on the crossing over of the blue and pink lines over the longer-term lime signal line.

On the Super Trend indicator, trend reversal signals are based on the shifting of the line and the changing of its color.

Confluences which occur quite closely to each other warrant a valid trend reversal signal.

Indicators:

• SuperTrend
• 7_Macd

Preferred Time Frames: 30-minute, 1-hour, 4-hour and daily charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

• The Super Trend indicator should shift below price action and should change to lime.
• The blue and pink 7 MACD lines should cross above the lime signal line.
• Enter a buy order on the confluence of these conditions.

Stop Loss

• Set the stop loss on the support below the entry candle.

Exit

• Close the trade as soon as the blue or pink 7 MACD line crosses below the lime line.
• Close the trade as soon as the Super Trend line changes to red.

Sell Trade Setup

Entry

• The Super Trend indicator should shift above price action and should change to red.
• The blue and pink 7 MACD lines should cross below the lime signal line.
• Enter a sell order on the confluence of these conditions.

Stop Loss

• Set the stop loss on the resistance above the entry candle.

Exit

• Close the trade as soon as the blue or pink 7 MACD line crosses above the lime line.
• Close the trade as soon as the Super Trend line changes to lime.

Conclusion

This trading strategy is a decent trend reversal strategy based on the confluence of two high probability trend following indicators.

It produces good yields on a winning trade, which should result in a high average risk-reward ratio. However, like most trend reversal strategies, it does not have an excellent win ratio. Trend reversal signals may not result in an actual trend reversal at times. However, since it based on high probability indicators, it does have an improved probability over other trend reversal strategies.

Traders can use additional price action basis to improve on the setups. Traders may wait for pullbacks to confirm a trend, use a higher time frame basis to identify the bigger picture trend direction or trade only on strong momentum shifts. In any case, traders who could get a feel of the market while applying some of these concepts may profit from the forex market.

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