The MACD indicator is a very popular indicator in market technology. It belongs to the group of trend followers and is therefore often used in long-term trading. In the short-term area, however, the indicator also has other strengths. With it, traders can build a strategy that gives clues as to when there is a favorable time to buy or sell.
A strategy must be implemented consistently. Many professionals use backtests to test the strategy for the likelihood of success. Forward tests with demo accounts are also quite common in the trading world. Why are such tests important? Since no strategy has a hit rate of 100%, such tests provide information about how high the hit rate could be. The following strategy is only an idea and should therefore be tested first.
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USD / CAD with MACD
The lower chart shows the currency pair USD / CAD on an hourly basis. Below that we see the MACD indicator with the default settings. These are recommended because the majority of traders work with standard settings. Based on the chart and the indicator, we now want to work out our signals for buying or selling the currency pair. The rules are as follows:
In order to receive a buy signal...
- the MACD indicator (blue area) must show two lows.
- must second low.
- the indicator must cross the zero line.
- a relevant resistance in the price must be broken.
In order to get a sell signal...
- the MACD indicator must form two highs.
- the second high must be lower.
- the indicator must cross the zero line down.
- relevant support in the course must be broken.
Let's take a look at this in practice:
The first two lows (red 1.2) were formed. Then the zero line was crossed up (red 3) and at the same time a relevant resistance was broken (red 4). The USD / CAD exchange rate then established a steep upward trend.
The upward trend was halted a short time later. The MACD indicator also indicated this. We see two highs, one of which is lower (blue 1, 2). The zero line was also crossed down (blue 3), but the support was able to hold (blue 4). A sell signal could therefore not be generated. In this case you let the position run, but in the case of an expired option there would also be the option to buy a new call option.
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the next situation, it becomes clear that here too (red 1, 2, 3, 4) no clear sell signal could be displayed because the support also held. Only the situation on it (blue 1, 2, 3, 4) shows a sell signal. This situation makes it clear that the two highs and lows can also be further apart.
As in the current case: After the first low (red 1), no second low was formed. Therefore no buy signal could be displayed. The upward trend has nevertheless established itself. If the trader implements a strategy consistently, it sometimes happens that he cannot take certain trends with him.
Only a few days later a second low was formed and the price approaches a relevant resistance. Only if this is broken sustainably could a buy signal be generated.
Trading strategy with the MACD: First trade in only 5 steps
A well-thought-out strategy is not to be seen as a guarantee of a profit, but nevertheless, it can effectively contribute to trading success. If you want to try out the trading strategy with the MACD, you will find the most important information on trading binary options in the following slideshow - and learn how to get to the first trade in just five steps.
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The MACD indicator is a classic trend following indicator. However, it also has other strengths in the short to medium term. When used correctly, the indicator has the advantage that it can deliver signals without additional indicators. Unfortunately, one has to look at the indicator that signals are often too late. However, this is the disadvantage of most trend-following indicators.
With the broker Banc de Binary, customers can implement many such strategies. It would be advisable to try the strategy using a forward test. This is important not only to check the probability of success, but also to train yourself as a trader for the consistent implementation of the strategy.