Cusps macd strategy

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Cusps macd strategy

In the previous article we have already treated the strategy based on the indicator of the MACD with the Bollinger bands on the average. Looking carefully this strategy I noticed that another very strong signal to enter in the market takes place when occur some cusps as shown in the figure below.

The construction of this chart is exactly the same made in the above. In the upper part there is the candles chart with time-frame to 1 minute and in the lower part there are the indicators MACD with the mobile media to 9 periods and the Bollinger bands. The only thing that we have added is the highlight in the cusps (with vertex at the top) that are outside of the Bollinger bands. How you can observe the signal that it has in these cases is an excellent signal. In fact in all three cases is observed that immediately after it has had the cusp, which obviously corresponds to a bearish candle (red) there is at least another red (generally two others). This encourages us to try the investment to 60 seconds opening a position PUT precisely at closure to the first red candle that generate the cusp.

What do you think? I want to specify that is a strategy and not a certainty. But aware that in world of the trading there are not certainties to have a good strategy that often leads to useful results is not bad at all.

To exercise I invite you to control for example in a day how many times this kind of circumstances give place to an useful result.

Updating: This strategy becomes the more effective as more the closure of the second side of the cusp is on the contour of the Bollinger band or even inside.

As required here in the comments I add a video that show how is possible to operate with this strategy.

On mobile devices as Ipad the annotations present in the video can be ignored.

We recommend to watch this video with Pc, portables or MAC.

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Made the minimum payment to open the account.

Ask immediately a demo account on which you can make all your tests.

Once you learn the right strategy – you begin to operate with real money.

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The MACD is one of the most popular and broadly used indicators for Forex trading. The letters M.A.C.D. is abbreviation for Moving Average Convergence Divergence. The MACD indicator, which requires Moving Averages as its input, falls into the group of the lagging indicators.

The basic function of the MACD Forex indicator is to discover new trends and to help identify the end of current trends. There are various ways to gauge the signals generated by MACD, and many traders use their own unique settings and methods around this trading indicator.

Understanding the MACD Indicator

The MACD indicator is typically placed at the bottom of the trading chart, in a separate window, beneath the price chart.

The Moving Average Convergence Divergence is a relatively easy-to-use tool, however, it is crucial to understand it fully before attempting to trade using its signals.

Let’s take a close look at the structure of the MACD indicator and its default settings.

MACD Structure

The MACD indicator consists of three components. There are two lines and a histogram. Let’s now discuss each of these separately:

  • MACD Line – The MACD line is the faster line on the indicator. Since it reacts faster it and is more sensitive, it generally moves above and below the second line of the indicator.
  • MACD Signal Line – The MACD signal line is the second line of the MACD indicator. It is called a signal line, because it generates the basic MACD signals. Since the line is slower, it gets frequently breached by the faster MACD line.
  • MACD Histogram – The MACD histogram simply represents the difference between the MACD line and the signal line. The bigger the gap between the lines, the higher the bars that the MACD histogram will display.

Below you will see an example of the MACD indicator:

This is a zoomed image of the MACD indicator. The blue line is the MACD line. The red line is the signal line. As you see, the MACD line is faster and it often breaks the signal line. The gray bars are the histogram, which move in harmony with the distance between the two lines of the indicator.

MACD Settings

On most trading platforms, the MACD indicator typically comes with the default parameters 26, 12, and 9. We will interpret the meaning of these three numbers and how they apply to the structure of the indicator.

The “12” and “26” are mutually related. These two numbers concern the calculation of the faster MACD line. The structure of the MACD line comes with calculating a 12-period Exponential Moving Average on the price action and then subtracting a 26-period Exponential Moving Average from the result. The difference between the two EMAs gives you the value of the faster line.

The “9” comes from the calculation of the slower line a.k.a. the signal line. This line is a product of a 9-period Exponential Moving Average plotted on the faster MACD line. This is why the signal line is slower than the MACD line – because it is the smoother version of the MACD line.

MACD Signals

Although the MACD indicator consists only of three components (the two lines and the histogram) it can provide a myriad of signals. We recognize six basic signals of the MACD and now we will discuss each of these separately.

MACD Crossovers

The MACD crossovers involve the interaction between the two MACD lines. The MACD line is faster than the signal line, and it will typically cross above and below the slower signal line.

  • Bullish MACD Crossover – We have a bullish MACD crossover when the MACD line crosses the slower signal line in the bullish direction. This action generates a bullish signal on the chart, which implies that the price might start an increase.
  • Bearish MACD Crossover – The bearish MACD crossover is opposite to the bullish MACD crossover. When the MACD line crosses the signal line in the bearish direction, we have a bearish crossover. This hints that the price action might be entering a bearish move.

Above you see a bullish MACD crossover. The green circle shows the moment when the faster MACD line crosses the signal line in the bullish direction. The price action increases afterwards.

MACD Divergence

One of the best uses of the MACD study in Forex trading is in identifying divergence signals. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions.

  • Bullish MACD Divergence – A bullish MACD divergence occurs when the price action is moving downwards and the MACD is showing higher bottoms. In this case, the MACD indicator is giving us a strong bullish signal. Very often we will see price begin a strong upwards move after a bullish divergence with the MACD. Below you see an example of a Bullish MACD Divergence. After the occurrence of the divergence we see that the price starts an uptrend.
  • Bearish MACD Divergence – The bearish MACD divergence happens when the price action is increasing and the MACD lines are creating lower tops. The bearish divergence by the MACD hints that the price might start a bearish move. In many cases, we will see a rapid bearish move after a bearish MACD divergence.

MACD Overbought/Oversold

Many people don’t know this about the MACD indicator, but the MACD indicator can also provide overbought/oversold signals as well.

  • Overbought MACD – The MACD is overbought when the MACD line gains a relatively big distance from the signal line. In such cases, we expect the bullish move to exhaust after the strong increase and a bearish move to appear.
  • Oversold MACD – The oversold MACD signal is opposite to the overbought signal. When the MACD line gains a relatively significant bearish distance from the signal line, then you are getting an oversold MACD signal. In this case we expect the price to exhaust in its decrease and to initiate a new bullish move.

In the green rectangle on the image above you see a case where the fast MACD line gains a relatively big distance from the red signal line. This indicates an oversold MACD signal. The price of the Forex pair increases afterwards.

Technical Analysis Using MACD

As you see, the MACD indicator is pretty rich on technical signals, and is a very versatile trading tool. You can also trade effectively by using MACD in combination with price action analysis. Let’s have a look some trading examples using the MACD below:

Above you see the MACD indicator applied to an MT4 chart. The indicator is attached at the bottom of the price graph. The image starts with a bearish divergence between the price action and the MACD indicator. As you see, the price creates higher highs, while the tops of the MACD indicator are decreasing (blue). The two MACD lines cross afterwards and the price drops. Then we see four more price swings related with bullish and bearish MACD crossovers. Every time the two lines cross we see a price swing in the direction of the crossover. Now let’s shift to another example using MACD analysis:

In this case, the price decreases after a bearish MACD crossover. However, 7 periods later we see a potential oversold MACD signal. The MACD line gains a significant bearish distance from the signal line. This implies that the Forex pair may be oversold and ready for a bounce. As you see, the price increases afterwards.

Forex MACD Trading System

Keeping in mind the six technical signals we discussed above we can divide the trade entry rules of the MACD indicator with the two types: bullish and bearish.

Bullish MACD Signals – Consider opening long trades after each of these three signals.

  • Bullish MACD Crossover
  • Bullish MACD Divergence
  • Oversold MACD

Bearish MACD Signals – Consider opening short trades after each of these three signals.

  • Bearish MACD Crossover
  • Bearish MACD Divergence
  • Overbought MACD

Stop Loss on MACD Trades

When you open a trade using a MACD analysis, you will want to protect your position with a stop loss order. To place your stop loss order effectively, you should refer to the chart for previous price action swing points.

If you are opening a long trade, you could place your stop loss below a previous bottom on the chart. If you trade short, then you could place your stop loss order above a previous top. If the price action creates a lower low on a long trade, or higher high on a short trade, your position will be closed automatically.

Taking Profit on MACD Trades

One way to exit a MACD trade is to hold until you receive an opposite signal. So a contrary MACD signal would be your signal to close out your trade. However, there are many other ways to manage your trade based on your personal preferences.

MACD Trading Strategy Example

Now let’s look at an example of a MACD trading method with price action analysis:

Above you see the H4 chart of the EUR/USD Forex pair for July, 2020. The image shows a couple of trades on the chart that incorporates the MACD lines and histogram.

The first trading signal comes when the price action creates an Inverted Hammer candle pattern after a decrease. A few periods later we see that the MACD lines create a bullish crossover. These are two matching bullish signals, which can be a sufficient premise for a long trade. You could buy the EUR/USD currency pair as shown by the first green circle on the price chart. A stop loss order should be placed below the bottom created at the moment of the reversal, as shown on the image.

The price increases afterwards and creates an AB=CD type pattern. This would have been an optimal exit point. After the creation of the last high, we see a reversing move, followed by a trend line breakout. At the same time, the MACD lines cross in bearish direction. These are two separate exit signals, which unfortunately come a bit late. If you closed the trade here, the trade would still have been slightly profitable.

One thing to note is that the trend line breakout and the bearish MACD crossover generate matching short signals on the chart, meaning that this could provide for a short trade opportunity.

The price starts decreasing afterwards with the creation of a new bearish trend. The MACD lines decrease as well. After a 6-day decrease, the two MACD lines create a higher bottom, while the price action is still decreasing. This creates a bullish MACD divergence on the chart. As such, you should exit the trade when the MACD lines cross upwards. This happens just a couple periods later, confirming the Bullish Divergence pattern. Notice that we didn’t hold the trade until the bearish trend line breakout, because there was sufficient reason from the MACD divergence formation to close earlier.

Trading MACD Divergence in Forex

Divergence trading is one of the most popular and effective Forex strategies. However, one downside with Divergence is that prices can stay in a divergent formation for quite some time without reversing, and it can sometimes be difficult to know when to enter this type of counter trend setup. Keeping a close eye on emerging price action patterns can be helpful in trading divergences.

This time we have the H1 chart of the USD/CHF a.k.a. the Swissy. The image depicts how we might trade a MACD divergence pattern.

The image begins with a sharp price drop. Suddenly the decrease slows down. At the same time, the MACD not only slows down, but it starts increasing, creating a bullish divergence. A bullish MACD crossover appears afterwards. You could have opened the trade based on this signal.

If you did, you would likely have gotten stopped out on this first entry. Shortly after, we get a Hammer Reversal candle, which provides additional confirmation of the bullish scenario.

The stop loss on the trade should be located below the Hammer Reversal candle as shown on the image.

You can see that the price creates a few swings while attempting to break in the bullish direction. However, the stop order is well positioned below the Hammer formation and the trade survives the pressure of the bears.

The price starts an increase afterwards. But on the way up we notice that the price action starts creating smaller swings. Soon after, we discover the Rising Wedge chart pattern on the image. Since the Rising Wedge has a strong bearish potential, a breakdown through its lower level could be used in combination with a bearish MACD cross to close the trade.

In our case, the MACD lines cross downwards right at the moment of the bearish wedge breakout. This is a strong signal that the price might initiate a decrease. For this reason, the trade should be closed when you receive these confluent exit signals.

You should always be watchful of price action clues when trading MACD divergence. This way you can attain a better understanding of where and when to enter and exit your MACD divergence trades.

Conclusion

  • The MACD indicator is one of the most widely used indicators for Forex trading.
  • MACD is an abbreviation for Moving Average Convergence Divergence.
  • It is calculated using Moving Averages, which makes it a lagging indicator.
  • The main function of the MACD is to discover new trends and to help find the end of present trends.
  • The MACD consists of three components:
    • MACD line – calculated by taking the difference between 12 and 26 period Exponential Moving Averages
    • Signal Line- smoothes the MACD line with 9 periods
    • Histogram – represents the difference between the MACD line and the Signal Line
  • There are 6 basic signals related with the MACD trade indicator:
    • Bullish Crossover – bullish signal
    • Bearish Crossover – bearish signal
    • Bullish Divergence – bullish signal
    • Bearish Divergence – bearish signal
    • Oversold MACD – bullish signal
    • Overbought MACD – bearish signal
  • The MACD indicator provides a myriad on signals, which makes it useful as a good standalone tool, but the best results come when the indicator is combined with price action analysis.
  • These are the basic rules for trading with the MACD indicator:
    • Consider long trades when you see a bullish MACD signal.
    • Consider short trades when you see a bearish MACD signal.
    • If you trade long, you should put a stop below an earlier bottom on the chart.
    • If you trade short, you should put a stop above an earlier top on the chart.
    • Hold your trades until you see an opposite MACD signal or until your stop is hit. You should use price action clues for managing potential exit points.

Listen UP.

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MACD Strategy – Only Use One Part Of It

September 13, 2020 by VP

To have the best MACD Strategy, you have to realize what you’re dealing with here.

The MACD indicator is one of the most popular indicators in the world.

But nobody uses it the right way.

Let’s put a proper MACD strategy together by using the best parts of it and ignoring the parts that fall short.

As always, you may watch the video for this blog post here, or simply continue reading on.

Will The Real MACD Indicator Please Stand Up (Please Stand Up)

Before we go too far here and lay out a real MACD strategy, I want to point a few things out — all of which pertain to the point that the MACD has many variations, even in its most common form.

There has always been debate with the indicator nerds (present) on which type of moving average (the “MA” in “MACD”) needs to be represented. The default settings are always the same, 26 12 and 9.

But as far as which moving average? It doesn’t matter.

Try them both out if you must, but there is no right answer, so don’t be concerned with that.

The important thing is that you avoid using the MACD provided on Oanda’s MT4, and other MT4s around the world. It’s a travesty, and not helpful to anyone. You may have to zoom in to see it.

You instead want something that looks more like what you saw in the BabyPips School.

The SMA vs EMA nerds can debate all the want. Just find one that looks good and go with it.

A MACD Strategy? First Things First

The histogram on the MACD is useless. I explained why in the video, but your best move is to ignore it.

If you like it, fine, keep it. But you do not need it.

You will find variations of the MACD down the line that utilize the histogram as a primary tool, and in that case, you have no choice but to use it.

But in most cases, I don’t know why it even exists. It’s useless. Please ignore it.

Is The MACD A Good Indicator To Use?

Contrary to everything else you’ll ever read, it’s not really.

It wasn’t horrible enough to be included in my Dirty Dozen video, but it’s not going to make your trading net positive either.

The MACD essentially does two main things — call reversals when the lines cross counter-trend, and call a trend when one of the lines crosses zero.

I am not here to show you how to use the MACD. There are hundreds of other places to go here. Just know that neither one of those two main things the MACD does are effective.

First off know the MACD indicator was created in the 1970s for stock trading.

And thousands of man-hours have been wasted creating blogs and videos showing you how to “win” with it, instead of showing you indicators that actually work for the Forex market.

The vast, vast majority of people use it to try and call reversals. Another bad move. Reversals are a sucker’s game.

As far as trying to call a trend, the MACD isn’t the worst thing on the planet, but it won’t get you to where you want to be.

Do this instead…

Try finding other indicators that confirm a trend by crossing a zero line, and compare them with the MACD’s ability to do the same thing.

If it’s beats the MACD, keep it. Then keep trying to find better ones than that.

There Are Other MACD Indicators?? Might They Actually Work??

Did you know there have been other MACDs and other variations of the MACD created this century? You can try those too you know.

Nobody does this because they are lazy. They take the first thing you give them, and preach its gospel fro mthe mountaintops without every trying any of the other (better) versions.

Here are a couple of examples. I wanted to just put the link here, but WordPress doesn’t allow this for “Security Reasons”, so I’ll just link you to the destination.

Zero-Lag MACD – Keep in mind, this looks like the piece-of-shit MACD I showed you earlier, but attempting to make an indicator that doesn’t lag is certainly a plus, and should be looked at.

Impulse MACD – A very interesting version which simply sits itself on the zero line if there’s no trend, then moves when it thinks there is one. Will take some tweaking with the settings to make it consistently usable, but a neat idea here.

You will also find variations that try and combine elements of the RSI, OsMA, Stochastics, and even Bollinger bands with the MACD. I skipped over most of these with the thought that combining two shitty indicators probably won’t make a good one, but I could always be wrong.

There are literally dozens of cool variations to this indicator. What’s good about this, is how we spoke in the Trend Indicators video and blog about how you wanted to find a “Zero-Cross” trend confirmation indicator, or a “Two Lines Cross” trend confirmation indicator.

“Where the hell do I find these?”, the people whined, after I just made their search 10X easier.

Well, the MACD features both, and it has dozens of variations. Maybe you could……I dunno…….start there?

The MACD Indicator’s Saving Grace (Ninja Trick)

The best component of the MACD is a component almost nobody bothers using, which is crazy to me since it’s right there in front of you.

For Longs

Make sure both lines are above the zero line, and have never gone below it since it last crossed itself.

Then, if they cross upward, go long.

Again, you may have to zoom in as I can’t make these images any bigger, but below is a great visual of this.

Examples of the type of long trades I’m talking about.

Remember, if either of those lines had crossed below the histogram at any time, it’s no longer a valid trade. You would have to wait for them to stay above the histogram and start again.

For Shorts

Just do the opposite. Make sure the lines are below zero and wait for them to cross downward.

This Has Been A Gigantic Tip (Did You Catch It?)

I call these continuation trades, and you will hear me refer to them a lot in the future.

They are responsible for the biggest trades I have made in my career. Without them, I would have probably half the success I have now.

You better go read that section again if any of it is unclear.

Now know this, the continuation trades the MACD gives you are inferior to what you are going to find with better indicators.

In your searches, you will run into indicators that have a zero line and also have two lines that cross each other.

HANG ONTO THESE.

Compare them to the MACD as well. Find out which one gives you better continuation trades. If it is the one you are testing, keep that sucker. You just found something good.

But never stop there. Always keep looking for something better.

Conclusion

This is the real MACD Strategy — to not be bound by all of the pieces it gives you.

I keep making things easier for you in your search for the perfect trend indicator.

We take the MACD, which even at its best, when it tries to give you those ninja confirmation trades, still falls flat compared to other options.

….unless you parse out the best parts of it, then you may just have something.

But if you are a fan of the blog, and of indicators, and of the way we trade, you can REALLY use the components of the MACD and it’s variations to further your search.

Because they will come up again.

I wanted to give you as much as I could from an indicator-search standpoint before we start getting into other topics, which I really feel I need to start doing. We’ll come back to indicators soon enough, no fear.

But it’s time to take everything you know so far and GO GET IT!!

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