MACD SEFC Trend Reversal Forex Trading Strategy

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MACD SEFC Trend Reversal Forex Trading Strategy

The concept trading is very simple. “Buy low and sell high”. With todays trading infrastructure and the concept of shorting traders could also “sell high and buy low” by taking a short trade.

Most trading strategies are aimed at looking for markets that are about to reverse with the goal of buying at the lowest price possible just as the market is about to reverse, or the other way around for those looking to short the market. Although this sounds like a good idea, it is very difficult to execute. Trading in this manner usually means that you are trading against an existing trend.

Although trading trend reversals might seem difficult, there are ways to increase the likelihood of getting the right trades. Many seasoned traders use technical indicators to give them a clue where the market may reverse or where the market is confirmed to have reversed. These technical indicators are what gives them an edge when trading the forex market.

MACD SEFC Trend Reversal Forex Trading Strategy uses two complementary indicators which works well in identifying trends and trend reversals. Trend reversal signals coming from these indicators that are closely aligned have a very high probability of resulting in an actual trend reversal.

New MACD

New MACD is a modified version of the classic Moving Average Convergence and Divergence (MACD).

MACD is an oscillating indicator typically displayed using two lines and a histogram. The first line indicates the difference between two moving average lines, which is called the MACD Line. The second line, called the Signal Line, is a moving average derived from the MACD Line. The histogram bars on the other hand is basically the difference between the MACD Line and the Signal Line.

There are several ways to interpret the MACD. Some traders interpret a crossover of the two lines as a trend reversal signal. This typically works for shorter trends. Others interpret trend reversal based on the crossing over of the lines over its midline zero. These signals tend to last longer whenever they occur.

There are also some slight oscillations which pull price back to its mean. In the case of the MACD, these are situation wherein the MACD Line would typically be drawn back to its midline whenever it strays far from it. These are the type of trades that Mean Reversal traders take. This also occurs multiple times during choppy markets.

SEFC05

SEFC05 is a custom indicator that provides indications of trend direction based on the crossing over of moving average lines.

With this setup, the moving averages used are set at a mid-term period and are characteristically very smooth. It is also less susceptible to sudden price spikes producing signals only when the market has clearly reversed. This makes the SEFC05 an excellent trend reversal signal for the mid-term trend.

The SEFC05 indicator is composed of two moving average lines. The faster line is blue while the slower line is red. It also paints bars between the lines. These bars change colors to indicate the direction of the trend. A bullish trend is indicated by lime bars while a bearish trend is indicated by orange bars.

Trading Strategy

The MACD SEFC Trend Reversal Forex Trading Strategy is a simple strategy that trades on crossover signals based on the SEFC05 indicator which are in confluence with the trend reversal signal on the New MACD.

Trend reversal signals on the SEFC05 are simple. Trades are considered whenever the bars in between the lines change color.

On the New MACD indicator, trend reversals are confirmed when the blue and red lines cross zero. This could indicate a longer-term trend reversal.

Indicators:

  • newMACD (default setting)
  • SEFC05
    • MA1Period: 48
    • MA2Period: 51

Preferred Time Frames: 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should cross above the SEFC05 lines.
  • On the SEFC05 indicator, the blue line should cross above the red line and the bars should change to lime.
  • On the New MACD indicator, the blue and dotted red line should cross above zero.
  • These bullish trend reversal signals should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss below the SEFC05 lines.

Exit

  • Close the trade as soon as price closes below the red line of the SEFC05 indicator.
  • Close the trade as soon as the blue line of the New MACD indicator crosses below zero.

MACD SEFC Trend Reversal Forex Trading Strategy

MACD SEFC Trend Reversal Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should cross below the SEFC05 lines.
  • On the SEFC05 indicator, the blue line should cross below the red line and the bars should change to orange.
  • On the New MACD indicator, the blue and dotted red line should cross below zero.
  • These bearish trend reversal signals should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss above the SEFC05 lines.

Exit

  • Close the trade as soon as price closes above the red line of the SEFC05 indicator.
  • Close the trade as soon as the blue line of the New MACD indicator crosses above zero.

MACD SEFC Trend Reversal Forex Trading Strategy 3

MACD SEFC Trend Reversal Forex Trading Strategy 5

Conclusion

Trends come in different lengths and magnitude. Some trends occur as smaller waves within a bigger trend while some trends occur as long-term trends. The key to profiting with trend reversal strategies is in identifying the type of trend reversal that you would like to trade and trade accordingly.

This strategy works well when used on mid-term trends. As such, traders could use this on markets that are trending on the mid-term period.

Trade management is also important when trading this strategy. Traders should be able to manage their trades correctly by trailing stop losses as price moves in the direction of the trend. This would allow you to mitigate losses and protect profits.

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