Friday, November 24, 2017

How To Trade MACD Divergence

January 2, 2010 by  
Filed under Fx Indicator

Personally, I love the MACD indicator because of its reliability and its ability to work well with other indicators to form a trading strategy. In my previous posts, I have gone through how you can make use of forex MACD indicator in your trading and how you can trade MACD crossover for profit.

In this post, I will go through how I actually trade with MACD divergence and how you can make use of it to form a trading strategy for yourself. If you are not sure about what divergence is, you can look at my previous post “Forex MACD Indicator Explained” and I will now go through the steps on how you can profit from the divergence.

The MACD divergence is a very powerful phenomenon that you can trade with. However you need to understand that the divergence works well only when there is a trend as MACD divergence is an indication of a upcoming reversal.

Here are how I trade the divergence myself:

Step 1: You have to make sure that there is a trend in action for the currency pairs you are trading. The best way to identify a trend is to use several moving averages. First, you plot a 20 EMA, 50 EMA and a 100 EMA moving average and see if they are stacked nicely in a nice manner. If they are stacked nicely with good angle and separation, it is a good indication of a trending market and if the EMAs are flat and mixed, there is no trend in the market.

Step 2: Observe the MACD and the price to look for divergence.

Step 3: Look for good reversal candle patterns like railway track, hammer and hanging man.

Step 4: Draw a trend line and wait for breakout.

Some of you may think that how can it be so simple? In fact, the most profitable forex trading strategy is one that is simple and not sophisticated.

Note to Readers

Do note that the above strategy is a general strategy that has not been fine tuned. In order for you to trade with it, please fine it tune on a demo account. If you do not know how to fine tune a strategy, please read the below

 

Comments

12 Responses to “How To Trade MACD Divergence”
  1. Tiffany says:

    I’m a newbie and am still trying to figure out the MT4 platform. Are there any other programmes that you will recommend other than MT4 as it is rather complicated and not very user friendly I suppose.

    Thank you!

    • Kelvin says:

      Hi Tiffany

      I myself is not using MT4 as well. I am using the web trading platform by my broker. By the way, which broker are you using?

  2. Saffiee Trunan says:

    what is the recommended time frame for this strategy? Daily or hourly? Thanks.

    • Kelvin says:

      Hi Saffiee

      The MACD divergence system works in all time frame. Do note that the higher the time frame it occurs, the more power the divergence has.

  3. Boyxx says:

    please add ” Notify Me when have a reply ” plugin for your blog, it’s useful for your reader

    thanks

    • Kelvin says:

      Thks for your recommendation. It will indeed be useful to other users as well and I have installed the plugin already.

  4. Boyxx says:

    Plese tell me how to config >> 20 EMA, 50 EMA and a 100 EMA ??

    which indicator to edit ?? Moving Average ? Period : 20 – Shift : 3 ?

    thanks

    wish you luck ^^

    • Kelvin says:

      Hi Boyxx

      I cant answer you question as my trading platform allows me to plot the EMA simply by selecting the period. Which trading platform are you using? Maybe I can try to figure out for you.

      • Boyxx says:

        I’m using Meta Trader 4

        • Kelvin says:

          Sorry Boyxx, I am not an expert with MT4 and I have talked to some traders using MT4 and they also have this problem. At the meantime, you can try to read the user manual provided by the platform and see if they teach you how to plot EMA.

  5. shakeel says:

    can i download these indicators or you can send on my e-mail address

    • Kelvin says:

      Hi Shakeel

      Those indicators are available from your trading platform. You do not need to download anything at all.

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