The forex MACD (Moving Average Convergence Divergence) strategy is based on the use of the MACD (which is an indicator) to identify moving averages that are showing the possible start of a new trend. There may be other things to look out for in the forex market but knowing when a trend will start and end beats them all because that is where the money is. To understand this better, here is a brief rundown of what a trend and a moving average is.
WHAT IS A TREND?
A trend is the tendency of a market to move in a particular direction for a notable period of time. It either appreciates or depreciates. When the market is appreciating, it is said that it is trending up; if it is depreciating, it is said to be trending down. A trader trading a trending market seeks to buy a security that is trending high so that when it reaches the peak of the trend, the security can be sold at a higher price to make some profits. On the other hand, a trader sells of a currency pair that is trending down, buys it back when it is at its lowest, and sells it off when it eventually appreciates.
WHAT IS A MOVING AVERAGE?
Moving average is simply an indicator used in technical analysis to detect before hand when a trend is about to hit the forex market. Detecting the trend on time helps the trader to buy and sell at the right time in order to make as much profits as possible.
Some of the MACD strategies that can be used to trade the forex market are
- The ranging swing trader
- The trend strategy
- The reversal strategy
For the purpose of this post, we will focus on the trend reversal strategy; how it works to help a trader make the most out of a trending forex market.
TRADING THE FOREX MARKET WITH MACD TREND REVERSAL STRATEGY
- The strategy tools needed are any time frame chart that has MACD applied with a default input of 12, 26, and 9
- The criteria for entering the market is to identify a divergence and then take the signals to open a position
- The exit criteria include setting stop limits two times the amount of the stop at least. The stop order should be set at the low of the move with a bullish divergence, or at the high of a move with bearish divergence
It may take some time to master this, but once mastered, the trader can be sure of some reasonable profits while trading a trending market.
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