MACD course in Forex

MACD course in Forex

Updated: Aug 24, 2022
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We always hear “the trend is your friend”, “follow the market”…it seems that trading the trend is easy. You only have to buy when the price action shows that the price is increasing and sell when it does the opposite. When we are going to put this into practice, it turns out that it is not so easy. Despite this, it is one of the most popular trading styles because when you enter a trend and manage to be within most of the development time of this trend, you can obtain very good benefits.

We will explain a trading strategy that helps to open positions in favor of the trend at the right time and with well-defined entry and exit rules. This strategy is known as Moving Average – MACD Combo and, as the name suggests, it uses moving averages and the MACD (Moving Average Divergence Convergence) indicator.

The MACD Combo strategy uses two Simple Moving Averages (SMA) and one MACD, technical analysis indicators, in their default settings (12,26,9). One SMA will be 50 periods and the other 100 periods. MACD Combo is intended for time frames from H1 to D1.

I. Purchase entry rules

  1. We expect the price movement of the currency pair to be from the bottom to the top of both the 50 and 100 period moving averages.
  2. Once the price has broken both moving averages by 10 pips or more (it also depends on the timeframe you are trading), we will go long only if the MACD has gone from negative to positive at most in the last 5 peron candles or more. away, otherwise we wait for the next MACD signal which will be valid if the price has not fallen below the moving averages at any time since the moving averages signal occurred.
  3. We put the stop loss at the low of the fifth candle prior to the entry candle.
  4. We close the middle of the trade and move the stop loss to breakeven when the price has moved in our favor twice the stop loss.
  5. We close the rest of the trade if the price falls below the 50-period Simple Moving Average by 10 pips or more.

II. Entry rules for sale

In a similar way to the buy entry rules, we can define the sale entry rules:

  1. We enter the sale if the price falls below both moving averages and the MACD has crossed the 0 level from top to bottom during the last 5 candles or we wait for the next MACD signal which will be valid if the price has not risen above the moving averages in no time since the moving averages signal occurred.
  2. We put the stoploss at the high of the fifth candle from the entry candle.
  3. We close half the trade if the profit is double or more than our stoploss.
  4. We close the entire trade if the price rises 10 pips or more above the 50-period SMA.

Why not take the signals from the moving averages or the MACD separately?

Both indicators separately give too many false signals. For example, in the following image we can see how the MACD can go from positive to negative several times and most of these signals would have ended in negative if they had been taken to enter the market.

Falsas señales con MACD

If we take the signals from the moving averages alone we can also find many false signals, we can even have conflicting signals between the MACD and the moving averages.

III. Example of entry for sale in EUR/USD

Ejemplo de señal de venta con la estrategia de trading MACD Combo.

In the image above you can see how the price of the EUR/USD falls below both averages, our first signal. At that time, the MACD is expected to change from positive to negative. We see that this change has occurred according to the rules given above, we open a sell position at 1.3643 (opening of the candle after everything is confirmed) with a stoploss at 1.3708 (high of the fifth candle before the candle in which we have opened the operation). The stoploss distance is 65 pips. The price starts to fall and when it reaches 1.3513, the profit is double the stoploss we have put in and at this point we close the middle of the trade and move the stoploss to breakeven (at the entry price). Time passes and the price rises by more than 10 pips above the 50 simple moving average, at this point we must close the entire trade.

IV. Example of buy entry in USD/JPY

Ejemplo de entrada en venta en USD/JPY con la estrategia Moving Average MACD Combo.

In this second example we see the USD/JPY price rise more than 10 pips above both moving averages. However, we should not open any trade because the MACD, even being positive, does not comply with the rule to open a purchase: that the change from -0 to +0 occurs at most 5 candles before the price rises above both. moving averages, so we should wait for the next MACD signal. But this signal does not arrive and the price falls below the moving averages at the same time that the MACD changes from positive to negative, it is a valid sell signal but, as we can see, it has been a false signal and this operation ends in negative when closing shortly then when the price rises by more than 10 pips above the 50 moving average. After this negative close, the price rises above both moving averages and the MACD changes from negative to positive, a valid buy signal, we open a trade that in this case ends with a profit (and a profit greater than the losses from the previous false sell signal :)).

As we have seen, the Forex MACD strategy can help you enter the direction of the trend in good time and with fairly objective entry and exit rules. However, it is good to use this strategy on those currency pairs that show more trend periods and make good moves such as the four major pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF). In addition, checking the momentum with indicators such as ADX can help improve the success rate of this strategy.

Sources & references
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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.

Course navigation

1. News Trading Strategy
2. FX Trading with CFDs
3. MACD Strategy
a. MACD course in Forex
4. Countertrend Strategy
5. Martingale
6. Soldiers Strategy
8. Trendline Strategy
10. Roller Coaster
11. Stop Loss Strategy
12. Pisco Sour Strategy
13. European Open Strategy

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