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 to be used is EUR / USD with an hourly chart. And at the bottom of the chart is the MACD indicator. While on the main chart you can see the parabolic SAR indicator with a green dotted line.
In the graph there are two scenarios that must be considered based on the strategy we will discuss. Starting from the left side, and around 5:00 a.m., June 27 2014. At that time we see the MACD indicator breaking the signal line from the bottom up. This shows the price will move upwards, and a few moments later the Parabolic SAR indicator also gives that indication. With anticipation, prices will continue to move up until around noon on June 30, 2014.
For this trade, the MACD indicator has crossed the signal line and this is a potential gain of 70 points.
Some time later on July 2, 2014, it was seen that the moving indicator was the price followed by the MACD indicator. Then then move below the signal line and move below the price. The result is an increase of around 80 pips, profit is taken when the signal from the price returns below the Parabolic SAR.
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. Then it began to move down the trend around June 9, 2014. On the other hand the price continued to move higher and higher. Even the MACD indicator is consolidated into an inverted triangle pattern which creates a divergence pattern with MACD.
In addition, the MACD indicator continues to move down to break the signal line on 10 June 2014. And in the end the price moves down the trend and confirms the movement of the MACD indicator moving down the breakout. The final profit is around 130 points if the trader opens an entry position close to the crossover.
Indeed, the difference between price and indicators signifies change in the long run. Same as seen by price movements in the upper 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.