Currently, we will try and analyze a forex trading strategy using the MACD Crossover indicator with the Parabolic SAR indicator on an hourly chart. Both of these indicators are standard technical tools owned by Metatrader.
In the example chart below, the pair that will be used is EUR / USD with an hourly chart where the bottom of the graph is the MACD indicator, while at the top of the graph is the Parabolic SAR indicator with a green dashed line.
In the graph above there are two scenarios that must be considered based on the strategy that we will discuss. Starting from the left side, and around 5:00 a.m., 27 June 2014, we see the MACD indicator penetrating the signal line from the bottom up which indicates the price will move upwards, and added a few moments later the Parabolic SAR indicator also gives an indication it will move up the marked with dot indicator is below the price.
With anticipation the price will continue to move up until around noon on June 30, 2014, when the parabolic SAR dot indicator is above the price that starts giving confusing signals.
For this trade the MACD indicator has crossed the signal line and is confirmed by the parabolic SAR dot indicator moving above the price which is an exit point which gives a potential profit of 70 points.
Some time later on July 2, 2014, it was seen that the Parabolic SAR indicator moved above the price followed by the MACD indicator moving downwards through the signal line and resulted in a price move according to the forecast when the Parabolic SAR indicator moved below the price.The result is a gain of around 80 pips, with profits taken when the signal from the price moves back below the Parabolik SAR indicator.
It’s easy, right? But it must be noted that this strategy must be tried first on a demo account so that we can have the right feel when we use it.
MACD Divergence or Convergence
This strategy is the most basic strategy because it utilizes the MACD crossover indicator using a divergence signal or the convergence between prices and indicators is a signal that is considered important by technical analysts and consequently considered a great opportunity when the signal is identified.
In the 4 hours chart, EUR / JPY pair
The MACD indicator managed to make the bar the highest on April 4, 2014 and began to move downtrend around June 9, 2014. On the other hand the price continued to move higher and higher even against the MACD indicator which consolidated into the upside triangle pattern which created a divergence pattern with MACD.
Furthermore, the MACD indicator continues to move down until it breaks the signal line on June 10, 2014, and finally the price moves downtrend and confirms the MACD indicator movement moves downward breakout with a final profit of around 130 points if the trader opens a position entry close to the crossover.
Indeed, the divergence between prices and indicators signals a change in the long term, as seen by price movements in the top chart.
Take profit action can be realized when MACD is flat and moves up on June 13, 2014.
The Divergence pattern is considered the most reliable signal produced by the MACD indicator.
Check out the video tutorial for how to learn online forex trading for beginners entitled Tutorial Two Forex Trading Strategies Using the following MACD. Hopefully it can help in your learning process.