The MACD Forex Swing Trading Strategy

January 30, 2017

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The MACD Forex Swing Trading Strategy

MACD is an indicator that used to identify the trend or momentum. As a momentum indicator, it responds to the speed of the price move. As a trend indicator, it determines the trend. The MACD histogram can spot a divergence. A DIVERGENCE happens when a new swing high or swing low is made but the MACD histogram does not. The histogram is in another direction. This means a divergence between the price and momentum or speed of the price. In other words, it tells you that there is potential that the market may be losing its steam.

This method can be used in a 1-hour timeframe and above. The indicator you need is only MACD with 12, 26, 9 settings.

Trading Rules:

The price must make a new swing high or swing low.
Draw a trendline connecting the two swing highs or swing lows
Check the MACD histogram if you can spot a divergence.

3.a.)Short Entry Divergence: If divergence is spotted, wait for the present candlestick to close then place your sell stop order just under the low of that candlestick

3.b.) Long Entry divergence: wait for the present candlestick to close and then place your buy stop order just above the high of the candlestick

4. Stop Loss for Long Trades Entry: Place it at 5-20 pips below the low of the candlestick.

5. Stop Loss for Short Trades: Place 5-20 pips above the high of the candlestick.

Target Profit Options:

3 times the amount you risked.
3 times the distance from the pullback/retracement to the new swing high (for a short entry) and opposite for long entry.
Fibonacci is another option to take profit.

Trade Entry Confirmation with Reversal Candlesticks:

Short Entries:

The reversal candlesticks to watch for are: dojis, inside bar, dark cloud, shooting star

Long Entries:

Watch for the dojis, inside bar, hammer, piercing line.

Disadvantages:

MACD is a lagging indicator, there can be a big move in the market before a signal in MACD shows.
Divergence may not be very accurate. The prices may have a tendency to burst up or down hitting the stop losses before it will go back to the trend.
It’s hard to spot the setup and may create