MACD and Stochastic - FOREX strategy

MACD forex indicator is very useful tool, however it lacks the ability to give us exact position entry. This can be easily fixed by adding oscillator such as Stochastic indicator to the mix. While MACD gives us information on trend direction and its strength (momentum) Stochastic helps us to enter position once the correction within trend exhausts itself. Forex Fractals are then used for accurate stop loss placement. Strategy uses adding to the winner (negative averaging) to get most out of the trend.

 

Used forex indicators:

(12,26,9) MACD (Moving average convergence divergence) - Trend identification.

Stochastic forex indicator (5,3,3) - position timing

Fractals indicator -  for stop loss placement.

 

Forex strategy rules:

SELL: 

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  1. MACD falls below 0 line (central line). Downtrend in progress.

  2. Stochastic readings above 70. Once it falls back under 70 line (both K and D lines) we enter the position short.

  3. We place stop loss at previous fractal up (bearish fractal).

  4. Take profit: We exit all positions once the MACD reverses (Moves above zero line)

 

Buy: 

  1. MACD rises above 0 line (central line). Uptrend is in progress.

  2. Stochastic readings below 30. Once it falls rises above 30 line (both K and D lines) we enter the position long.

  3. We place stop loss at previous fractal down(bullish fractal).

  4. Take profit: We exit all positions once the MACD reverses (Moves under zero line).

 

Notes to adding to positions:

Once you open new position, move stop loss of all previous positions to break even of last profitable position. Using this simple position building method, you can let your profits run and increase position size, without any additional risk.

 

 

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