EMA MACD Congestion Breakout Forex Trading Strategy

0
1073
EMA MACD Congestion Breakout Forex Trading Strategy

Congestion zones are a good source of potential breakout trades.

The market is composed of two phases – expansion and contraction. Congestions are a type of contraction where instead of retracing from a trend, the market starts to have a narrow range where price tends to stay within for a while.

Congestions are the kind of market condition that traders would avoid at all cost. These markets have low volatility and are very choppy. Trading within such a narrow range makes it difficult to profit from the market.

However, savvy traders know that there is an opportunity to trade whenever a market congestion is observable. This is because they are not looking to trade within the congestion area but rather, they are looking to trade the breakout from such congestion. Often, breakouts from congestions have a sudden burst of momentum. This is because most traders stay on the sidelines during a congestion phase. As soon as a trading opportunity is available, a big chunk of the market could trade with high volume and thus causing a strong momentum price movement.

EMA MACD Congestion Breakout Forex Trading Strategy thrives on such conditions. It allows traders to systematically take trades on breakouts from a congestion zone using a combination of indicators that confirm such breakout.

Exponential Moving Averages Signals

The Exponential Moving Averages Signals indicator is a custom indicator that provides trade signals using a combination of Exponential Moving Averages (EMA).

This indicator provides trade signals based on the crossover of two EMAs. The indicator then conveniently displays an arrow at the point where the crossover occurred, pointing the direction of the trade signal.

MACD Elder

The MACD Elder indicator is a custom indicator based on the Elder Impulse System as developed by Alexander Elder. It is still based on the traditional MACD indicator, however, this configuration of the MACD is modified.

This indicator is an oscillating indicator that displays trend direction using histograms and a signal line. Positive histograms indicate a bullish trend, while negative histograms indicate a bearish trend. Crossovers between the histogram bars and the signal line also indicate a possible trend reversal.

The indicator’s histogram bars also change colors depending on the direction of the trend. Green bars indicate that the bulls have taken over and that the market is pressured to trend upwards. Red bars indicate that the bears have taken over and that the market is pressured to go lower. Blue bars on the other hand are printed whenever the conditions for a green and red bar have not yet been met.

Trading Strategy

This trading strategy trades on breakouts from tight congestion zones which are confirmed by the confluence of the Exponential Moving Averages Signals and the MACD Elder indicator.

On the price chart, a congestion zone should be observable. This is characterized by a narrow price range with candles that are showing indecisiveness. The tighter the range, the better.

Price should then break out of the range. As price breaks out of the range, the Exponential Moving Averages Signals indicator should print an entry signal indicating the direction of the breakout. This should also be confirmed by the crossing over of the MACD Elder indicator over the midline. The color of the MACD Elder histogram bars should also confirm the direction of the breakout.

Indicators:

  • ExponentialMovingAveragesSignals
    • FasterEMA: 15
    • SlowerEMA: 18
  • ZZ_YZ-MDAC_ELDER_1-1000. (default setting)

Timeframe: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

  • A congestion zone should be observed on the price chart.
  • Price should breakout and close above the congestion zone.
  • The Exponential Moving Averages Signals indicator should print an arrow pointing up.
  • The MACD Elder histograms should be color green indicating a bullish market bias.
  • The MACD Elder histograms should be crossing above zero.
  • The bullish signals above should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss below the middle of the congestion zone.

Exit

  • Close the trade as soon as the Exponential Moving Averages Signals prints an arrow pointing down.
  • Close the trade as soon as the MACD Elder histograms cross below zero.

EMA MACD Congestion Breakout Forex Trading Strategy

EMA MACD Congestion Breakout Forex Trading Strategy2

Sell Trade Setup

Entry

  • A congestion zone should be observed on the price chart.
  • Price should breakout and close below the congestion zone.
  • The Exponential Moving Averages Signals indicator should print an arrow pointing down.
  • The MACD Elder histograms should be color red indicating a bearish market bias.
  • The MACD Elder histograms should be crossing below zero.
  • The bearish signals above should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss above the middle of the congestion zone.

Exit

  • Close the trade as soon as the Exponential Moving Averages Signals prints an arrow pointing up.
  • Close the trade as soon as the MACD Elder histograms cross above zero.

EMA MACD Congestion Breakout Forex Trading Strategy3

EMA MACD Congestion Breakout Forex Trading Strategy4

Conclusion

Trading on congestion zone breakouts is probably one of the best trade setups. This is because trading on such conditions allow for a very high reward-risk ratio.

Tight congestion zones allow traders to put tight stop losses. Some could even place the stop loss on the other side of the congestion zone since most congestion zones are tight enough to allow for it. Then, after the breakout, the market usually expands rapidly toward the direction of the breakout. This allows traders to gain so much, with so little risk.

Trading congestion zones with a confirmation and confluence of reliable indicators improve the probability of the strategy. This strategy does that.

Recommended MT4 Brokers

XM Broker

  • Free $50 To Start Trading Instantly! (Withdraw-able Profit)
  • Deposit Bonus up to $5,000
  • Unlimited Loyalty Program
  • Award Winning Forex Broker
  • Additional Exclusive Bonuses Throughout The Year

XM broker

>> Sign Up for XM Broker Account here <<

FBS Broker

  • Trade 100 Bonus: Free $100 to kickstart your trading journey!
  • 100% Deposit Bonus: Double your deposit up to $10,000 and trade with enhanced capital.
  • Leverage up to 1:3000: Maximizing potential profits with one of the highest leverage options available.
  • ‘Best Customer Service Broker Asia’ Award: Recognized excellence in customer support and service.
  • Seasonal Promotions: Enjoy a variety of exclusive bonuses and promotional offers all year round.

fbs broker

>> Sign Up for FBS Broker Account here <<

Click here below to download:

Save

Save



Get Download Access

Get Smarter About Forex Trading Using Indicators

Join 100,000+ subscribers and get our 5 min daily newsletter on what matters in forex.

We do not sell or share your information with anyone.

LEAVE A REPLY

Please enter your comment!
Please enter your name here