MACD Strategy
This MACD strategy I m about to show you is one of the highest win rate
strategies you can possibly do in trading. It is very easy to use, works in almost every single
market, and most importantly, it makes money. Well enough talk, lets get straight into it.
The MACD or the Moving Average Convergence Divergence is one the most popular technical
indicators used by traders.
Essentially this indicator uses moving averages to find trends
in markets, and its pretty damn good at it too. Now, if you re an experienced
trader, you ve probably used or heard about the MACD indicator before.
But the MACD indicator by itself, is just alright to be honest. So, make sure you watch this
full video to see how I pair it with some other indicators to make it perform so much better.
First things first, let s add the MACD indicator to our chart.
To do that . Now that we have the MACD indicator added, lets
make sure we know how the MACD actually works. The MACD is made up of 4 different
components. The MACD line, the signal line, the histogram, and the zero line.
The MACD line which is the blue line, in most cases is usually a 12 day moving
average, the signal line, which is the orange line, is usually a 26 day moving average.
Next we have the histogram, which represents the difference between the MACD line and the signal
line.
So for example, the smaller the space between the two lines, the smaller the histogram
gets. The bigger the space, the bigger it gets. You can also see once the MACD
line crosses above the signal line, the histogram turns green and if the MACD line
crosses below the signal line it turns red. And finally, we have the zero
line, which basically represents the center of the MACD indicator.
Now that we know the 4 components, lets make sure we know how to them.
The MACD indicator is insanely good at finding trends in markets. How you can tell
if a chart is about to have an upward trend is by looking for a cross upwards between
the MACD line and the Signal line. For example, here the macd crosses above the
signal line indicating the chart is in upward momentum, and here the macd crosses below the
signal line indicating it s in downward momentum. You can also use the histogram to indicate
how much momentum there actually is.
So, if the histogram is getting bigger, that means
there is an increase in momentum. If it s getting smaller, there is a decrease in momentum.
So how you want to use this indicator is by when the lines cross upward, but only if they cross
below the zero line. If they cross and its above the zero line you wouldn t enter a trade.
It s the same thing with shorting, you only enter a short trade if the lines are
crossing downward, and is ABOVE the zero line. So as you can see, this indicator is extremely
easy to use. But the problem most traders encounter, is that they use this indicator by
itself. Let me tell you why this doesn t work. The MACD indicator works extremely well if
the market is in a trend.
So for example here, the MACD indicator is doing a great job
indicating when the price is about to move upward. Because the chart is in an upward trend.
But here, the price is in a downward trend, but the MACD is still signaling to buy
long even though the price is going down. To fix this issue, for example if
we are trading long, we only want to trade if the market is in an uptrend.
You never want to trade against the trend, because the odds will always be against you.
So, an easy way to figure out if the market is in an uptrend. You simply just
need to add a 200 day moving average. To do this
Once we have the indicator added, you ll just see a single line.
If the price is above that line, the market is in an uptrend. If the price is
below that line, the market is in a downtrend. So after learning that we only want to
buy when the market is in uptrend, if we re going long of course.
if we put all this together, we buy if the macd lines cross below the
zero line mark, and the current price also above the 200 day moving average.
This will guarantee that you are only trading when the market is in an
uptrend, which is a very power combo. If you wanted to short, you would just do
the exact opposite.
Make sure the price is below the 200 day average and the macd lines
are crossing downward above the zero line. So as an example we would enter a long trade
right here, because the macd lines are crossing upward below the zero line, and the current
price is above the 200 day moving average. Now what I like to do is set a stop loss below the
200 day moving average, so the 200 day almost acts as a wall that the price has to break through
to hit my stop loss. Then I like to have a 1.5 profit ratio for my profit target mark.
So as you can see for this example, the strategy worked exactly as we
wanted it to, and we made money. But, we can still make this
trading strategy even better. This macd strategy combined with a 200 day moving
average, works extremely well only if there is a lot of price movement. Where the strategy starts
to get kind of iffy and giving false signals, is when the chart starts going
sideways and losing momentum. So as you can see here the chart is moving
sideways and lost almost all of its upward momentum and the macd is giving lots
of false signals.
If you traded here, odds are you probably lost money.
To fix this issue we have to combine the MACD with price action. To do this, identify
a key support or resistance where price hits and bounces. So as you can see the prices goes
down, hits this point, and reverses upwards. The next step is to wait for the price to
hit the same key level again. Once it does, we are expecting the price to bounce off this
support and go upwards just like it did before. But as a clear note, just because we made
the support and it bounced off this before, doesn t mean that it will always do that again.
It can easily break through the support and drop lower if it has enough momentum.
If we want to make sure the price is about to change in momentum, that s
when we bring out the MACD indicator. So what you would do, is make sure the
price above the 200 day moving average, once the price hits the support made, wait for the
lines on the MACD to cross below the zero level, and that s when you enter the trade.
So I just revealed to you how the MACD, 200 day moving average, and using support
and resistances levels gives and extremely high win rate with this strategy.
All I ask for in return is if you to take 2 seconds of your time and like
this video.
If you want to stay up to date with my future strategies make to
subscribe. Because in my next video, I m planning to release a strategy that works
even ever better than this MACD strategy. Hope you guys learned something from this
video, and I ll see you guys next time..
