Momentumwith Stochastic and MACD Trading System is strategy for swingtrading.
Timeframe 60 min, 240, min, daily and weekly.
Currencypairs: any.
ForexIndicators:
MACD(12,26, 9).
Stochasticoscillator (5,3,3) eith 20 and 80 levels.
TradingRules
Buy
Whenthe histogram is above zero level, the currency is on an uptrend.
Thenwe want it to start declining towards the zero level.
Afterit nears the zero level, we want it to reverse and go up again.
Howshould we enter a long (buy) trade?
First we need to recognize a turning point on the MACD histogram.
Thismeans that the blue histogram bars should be above the zero level,
andthen it should start declining. Finally it should reverse and go up
again.
After we've made sure that conditions are met on the MACD
histogram,we should turn to the Stochastic indicator and see its
position:we need it to be on the oversold area (around level 20); we
wantthe two lines to cross each other; and we want the lines to face up.
Wewant at least one of the averages to be below level 20.
Nowis the moment we should determine our exact entry point. The
momentwe see the histogram rise again and the stochastic decrease to
theoversold zone, we need to wait for the candlestick that created this
conditionto close.
Assoon as the candlestick is closed, we should enter this trade.
Let'sanalyze a long trade example:
Inthis example we can clearly see that the histogram is facing up again
andthat the Stochastic lines have crossed each other on the oversold
level,on their way up.
Thehistogram is facing up and the stochastic lines have crossed each
otheron the oversold zone, level 20.
There’sa very important point I would like to add. It refers to a situation
wherethe histogram is above level 0 and declines below level 0.
Ifit happens (i.e., if it declines below level 0), it has to reverseand
returnimmediately above this level on the next bar in order for this to
bea valid trade setup.
Weplace the stop loss 1 pip below our base candlestick, which is the
candlestickwhere all the conditions have been met.
ForExample:
HereI’ll close the trade in two parts: 80% of the trade will be closed
initially,and then I’ll close the remaining 20%.
FirstTake Profit Target
Myfirst take profit goal is to set a profit target of a 1:1 ratiobetween
thestop loss and the take profit.
Forexample: If I risk 50 pips, my take profit target will be 50 pips.When
theprice reaches the first take profit target, I’ll close 80% of thistrade.
SecondTake Profit Target
Afterthe first part of the trade has been closed, I will move the stoploss
tothe breakeven point (that is, I’ll change it to the trade’sopening
price).
Thesecond profit target is twice the stop loss.
Forexample: If I’ve risked 50 pips my second profit target is100 pips.
Thisis a screen shot of target 2:
That'sit…
Ourfirst take profit target is closed successfully in 80% of trades andthe
secondprofit target is closed with a profit in 45% of trades.
Thisstrategy repeatedly generates impressive returns for me, and I'm
surethat once you master it, you will see the difference in your bottom
lineas well.
Sell
Whenthe histogram is below zero level, the currency is on a downtrend.
Thenwe want it to start declining towards the zero level.
Afterit nears the zero level, we want it to reverse and go up again.
Howshould we enter a short (sell) trade?
First we need to recognize a turning point on the MACD histogram.
Thismeans that the histogram should be below the zero level, and then
itshould start rising. Finally it should reverse and go down again.
Forexample:
After we've made sure that conditions are met on the MACD
Histogram,we should turn to the Stochastic indicator and see its
position:we need it to be on the overbought area (around level 80); we
wantthe two lines to cross each other; and we want the lines to face
down.
Nowis the moment we should determine our exact entry point. The
momentwe see the histogram fall again and the Stochastic reach the
overboughtarea; we need to wait for the candlestick that created this
conditionto close.
Assoon as the candlestick is closed, we should enter this short sell
trade.
Thisis an example of a short sell trade:
Weplace the stop loss 1 pip above our base candlestick, which is the
candlestickwhere all the conditions have been met.
Weshould add the spread to the stop loss in a short trade, so we place
thestop loss 1 pip+ spread above the high of our base candlestick.
HereI’ll close the trade in two parts: 80% of the trade initially, andthen
theremaining 20%.
FirstTake Profit Target
Myfirst take profit goal is to set a profit target of a 1:1 ratiobetween
thestop loss and the take profit.
Forexample: If I risk 50 pips, my take profit target will be 50 pips.When
theprice reaches the first take profit target, I’ll close 80% of thistrade.
SecondTake Profit Target
Afterthe first part of the trade has been closed, I will move the stoploss
tobreakeven point (that is, I’ll change it to the trade’s openingprice).
Thesecond profit target is twice the stop loss.
Forexample: If I’ve risked 50 pips, my second profit target is100 pips.
