Forex Trading

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Forex Strategy: MACD Indicator Examples - Trade In The Right Direction

If you want to be very cautious in your Forex strategy, going only for high probability trades, then pay attention to MACD on the 4 hour and 1 hour charts.

Some traders will only enter a trade when the 4 hour and 1 hour MACD’s are going in the same direction.

This will mean a lot less trades but the ones you do take are likely to be profitable.

Note: Agreement of the two MACD’s is used in conjunction with other indicators, not by itself.

MACD on the 1 hour chart is particularly powerful.

If you want to stay out of trouble and avoid trades you might later regret, NEVER trade against the direction of the 1 hour MACD.

To do otherwise is not necessarily foolhardy if you know what you are doing.

But for the newer, less experienced trader, only trading long when MACD has crossed up, or short when MACD has crossed down on the hourly chart when your other favorite indicators line up, will make for a higher success rate with your Forex strategy. It will also save you much anxiety!

	USD/CAD 1 Hour Chart
	MACD is shown in red, black is the signal or trigger line MACD pointing down

	USD/CAD 4 Hour Chart
	MACD is shown in red, black is the signal or trigger line MACD pointing down

MACD Indicator - Component parts

The default MACD on most charting packages sets 2 EMA’s (Exponential Moving Averages) at 26 and 12 days.

This is represented by a colored line (color varies according to charting package) which crosses a different colored 9 EMA often termed the trigger line.

When MACD (the 12/26 EMA) crosses above the trigger line (9 EMA) upward momentum is indicated and vice versa.

A center line, or zero line, often called the water line is also shown in the MACD indicator. When MACD is above the water line an upward trend is indicated, when it is below the water line, a downward trend is indicated.

MACD also includes a histogram, small vertical lines that appear above or below the zero line, not unlike mountains and valleys in appearance.

MACD is a lagging indicator which follows price action.

The histogram is an indicator of MACD. So watching the histogram can give you an early indication of where MACD is going. The height of the histogram can be a good momentum indicator.