One of the better ways to identify trend direction is the use of moving averages. When you come to think of it, trending markets is basically a market wherein price is consistently rising or falling. This constant rise or fall in price would cause its average to rise or fall along with it. In the context of a moving average, it will cause it to slope either up or down.
The Moving Average Convergence-Divergence (MACD) also has the same concept. In fact, its plotting is derived from the relation of a faster MA in relation to another slower moving average. In a way, it shares the same concept with the crossover of moving averages. The difference is that it is plotted in a separate window.
Knowing how crossovers of moving averages are used to identify probable new trends, we will be using a custom moving average to identify as a basis for the crossovers. It will be a moving average with multiple lines, which when fanning out would form a rainbow-like stack. Just as the regular crossover strategy, we will buy as the faster moving average crosses over the slower moving average going up. On the other hand, we will be taking short positions as the faster moving average crosses below the slower moving average.
As an additional confirmation, we will also be using the MACD. We will be taking buy signals only when the faster MACD is above the slower MACD. This is also shown through histograms based on whether it is positive or negative. Flip it over for the filter on sell signals.
Currency Pair: any
Trading Session: any
How to trade with Custom MA-MACD Forex Trading Strategy?
Buy (Long) Trade Setup
- realMACD histograms should be positive
- Enter a buy market order as the RainbowMMA_11 crosses above the RainbowMMA_08 indicator
- Set the stop loss below both moving average indicators
- Close the trade as the realMACD histogram crosses below zero
Sell (Short) Trade Setup
- realMACD histograms should be negative
- Enter a buy market order as the RainbowMMA_11 crosses below the RainbowMMA_08 indicator
- Set the stop loss above both moving average indicators
- Close the trade as the realMACD histogram crosses above zero
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How to download and install an indicator?
In order to install the indicator on your MT4 platform, you need to follow these steps:
- Click on “Download Indicator” button located at the bottom of the post.
- Save the file to your computer.
- Extract and move the files into MT4>Indicator folder of the MetaTrader 4 software file directory.
- Restart your MetaTrader platform.
- Navigate to “Indicators.”
- And select “Custom MA-MACD Forex Trading Strategy” template to apply it on the chart.
Note: This indicator was developed by T. Morris. AtoZ Markets does not carry any copyrights over this trading tool.
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