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Momentum with Stochastic and
MACD Trading System
By learn forex trading Send to Kindle
Momentum with Stochastic and MACD Trading System is strategy for swing
trading.
Time frame 60 min, 240, min, daily and weekly.
Currency pairs: any.
Forex Indicators:
MACD (12,26, 9).
Stochastic oscillator (5,3,3) eith 20 and 80 levels.
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Trading Rules
Buy
When the histogram is above zero level, the currency is on an uptrend.
Then we want it to start declining towards the zero level.
After it nears the zero level, we want it to reverse and go up again.
How should we enter a long (buy) trade?
First we need to recognize a turning point on the MACD histogram.
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This means that the blue
histogram bars should be above
the zero level,
and then it should start declining.
Finally it should reverse and go up
again.
After we've made sure that conditions are met on the MACD
histogram, we should turn to the Stochastic indicator and see its
position: we need it to be on the oversold area (around level 20); we
want the two lines to cross each other; and we want the lines to face up.
We want at least one of the averages to be below level 20.
Now is the moment we should
determine our exact entry point.
The
moment we see the histogram rise
again and the stochastic decrease
to
the oversold zone, we need to wait for the candlestick that created this
condition to close.
As soon as the candlestick is closed, we should enter this trade.
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Let's analyze a long trade example:
In this example we can clearly see that the
histogram is facing up again
and that the Stochastic lines have crossed each
other on the oversold
level, on their way up.
The histogram is
facing up and the
stochastic lines
have crossed
each
other on the
oversold zone,
level 20.
There’s a very
important point I
would like to
add. It refers to a situation
where the histogram is above level 0 and declines below level 0.
If it happens (i.e., if it declines below level 0), it has to reverse and
return immediately above this level on the next bar in order for this to
be a valid trade setup.
We place the stop loss 1 pip below our base candlestick, which is the
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candlestick where all the conditions have been met.
For Example:
Here I’ll close the trade in two parts: 80% of the
trade will be closed
initially, and then I’ll close the remaining 20%.
First Take Profit Target
My first take profit goal is to set a profit target of
a 1:1 ratio between
the stop loss and the take profit.
For example: If I risk 50 pips, my take profit
target will be 50 pips. When
the price reaches the first take profit target, I’ll
close 80% of this trade.
Second Take Profit Target
After the first part of the trade has been closed, I
will move the stop loss
to the breakeven point (that is, I’ll change it to the trade’s opening
price).
The second profit target is twice the stop loss.
For example: If I’ve risked 50 pips my second profit target is 100 pips.
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This is a screen shot of target 2:
That's it…
Our first take profit target is closed successfully
in 80% of trades and the
second profit target is closed with a profit in 45%
of trades.
This strategy repeatedly generates impressive
returns for me, and I'm
sure that once you master it, you will see the
difference in your bottom
line as well.
Sell
When the histogram is below zero level, the
currency is on a downtrend.
Then we want it to start declining towards the
zero level.
After it nears the zero level, we want it to reverse and go up again.
How should we enter a short (sell) trade?
First we need to recognize a turning point on the MACD histogram.
This means that the histogram should be below the zero level, and then
it should start rising. Finally it should reverse and go down again.
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For example:
After we've made sure that
conditions are met on the MACD
Histogram, we should turn to the
Stochastic indicator and see its
position: we need it to be on the
overbought area (around level 80);
we
want the two lines to cross each
other; and we want the lines to
face
down.
Now is the moment we should determine our exact entry point. The
moment we see the histogram fall again and the Stochastic reach the
overbought area; we need to wait for the candlestick that created this
condition to close.
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As soon as the candlestick is closed, we should enter this short sell
trade.
This is an example of a short sell trade:
We place the stop loss 1 pip above our
base candlestick, which is the
candlestick where all the conditions
have been met.
We should add the spread to the stop
loss in a short trade, so we place
the stop loss 1 pip+ spread above the
high of our base candlestick.
Here I’ll close the trade in two parts:
80% of the trade initially, and then
the remaining 20%.
First Take Profit Target
My first take profit goal is to set a
profit target of a 1:1 ratio between
the stop loss and the take profit.
For example: If I risk 50 pips, my take profit target will be 50 pips. When
the price reaches the first take profit target, I’ll close 80% of this trade.
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Second Take Profit Target
After the first part of the trade has been closed, I will move the stop loss
to breakeven point (that is, I’ll change it to the trade’s opening price).
The second profit target is twice the stop loss.
For example: If I’ve risked 50 pips, my second profit target is 100 pips.
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