If you closed the trade here, the trade would still have been slightly profitable. One thing to note is that the trend line breakout and the bearish MACD crossover generate matching short signals on the chart, meaning that this could provide for a short trade opportunity.
The price starts decreasing afterwards with the creation of a new bearish trend. The MACD lines decrease as well. After a 6-day decrease, the two MACD lines create a higher bottom, while the price action is still decreasing. This creates a bullish MACD divergence on the chart. As such, you should exit the trade when the MACD lines cross upwards. This happens just a couple periods later, confirming the Bullish Divergence pattern. Divergence trading is one of the most popular and effective Forex strategies.
However, one downside with Divergence is that prices can stay in a divergent formation for quite some time without reversing, and it can sometimes be difficult to know when to enter this type of counter trend setup. Keeping a close eye on emerging price action patterns can be helpful in trading divergences. The image depicts how we might trade a MACD divergence pattern. The image begins with a sharp price drop. Suddenly the decrease slows down. At the same time, the MACD not only slows down, but it starts increasing, creating a bullish divergence.
A bullish MACD crossover appears afterwards.
How to Use the MACD Indicator in Forex
You could have opened the trade based on this signal. If you did, you would likely have gotten stopped out on this first entry. Shortly after, we get a Hammer Reversal candle , which provides additional confirmation of the bullish scenario. The stop loss on the trade should be located below the Hammer Reversal candle as shown on the image. You can see that the price creates a few swings while attempting to break in the bullish direction.
How to Trade Using MACD
However, the stop order is well positioned below the Hammer formation and the trade survives the pressure of the bears. The price starts an increase afterwards. But on the way up we notice that the price action starts creating smaller swings. Soon after, we discover the Rising Wedge chart pattern on the image. Since the Rising Wedge has a strong bearish potential, a breakdown through its lower level could be used in combination with a bearish MACD cross to close the trade.
In our case, the MACD lines cross downwards right at the moment of the bearish wedge breakout.
This is a strong signal that the price might initiate a decrease. For this reason, the trade should be closed when you receive these confluent exit signals. You should always be watchful of price action clues when trading MACD divergence. This way you can attain a better understanding of where and when to enter and exit your MACD divergence trades.
MACD indicators [list]
Once you run the indicator you can set the parameters. You can select MACD alert conditions to use and how to receive notifications. For more detailed instructions on how to perform the installation please visit this article. It has exactly the same features as the version of the indicator for MT4. You can open a trading account with any of the MT4 Forex brokers to freely use the presented here indicator for MetaTrader 4.
If you want to use an MT5 version of the indicator presented here, you would need to open an account with a broker that offers MetaTrader 5.
- The Good Macd Indicator For MT4!
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MACD: Ultimate Guide to Use & Read MACD Indicator in Trading | LiteForex
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