Equities Forex NZD/USD Education

MACD – Stochastics combination

Once we have learned which indicators are for trends, overbought/oversold, tops and bottoms, etc; we can then create our own trading strategy. A simple trading strategy can be created with a slow MACD indicator and a faster moving Stochastics indicator. The MACD should tell us the direction of the trend; therefore we should be looking for entries in the direction of the trend. The stochastics should tell us when the price has finished retracing and is heading back in the direction of the main trend, indicated by the MACD.

On the chart above, courtesy of the Forex Broker ActivTrades http://www.activtrades.co.uk/, we can see that during the last few candles the MACD has shown that the trend is bearish. Notice that the MACD has a slow configuration of 19, 36, 9. The Stochastics has been configured to 3, 3, 3 to make it more sensitive to price changes. Since the MACD is pointing down, it indicates that the trend is bearish. Therefore, if the Stochastics goes to overbought levels, above 80, and then comes back down, that would be a signal for a short entry. It is generally more reliable when the MACD is pointing down, like in this case. The opposite applies to long entries.

Alexander Londono – Analyst Contributor at ActivTrades.

Disclaimer: Leveraged products carry a high degree of risk to your capital. The thoughts and opinions expressed here are solely those of the writer and do not necessarily reflect the view of ActivTrades Plc. This commentary is for information purposes only and should not be considered as investment advice. The decision to act on any ideas and suggestions presented is at the sole discretion of the reader. ActivTrades PLC is authorized and regulated by the Financial Conduct Authority, FCA registration number 434413. ActivTrades PLC, 1 Thomas More Square, London, E1W 1YN, United Kingdom.

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