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Successful traders rely on strategies crafted to suit their trading style. If you’re new to forex trading, you can learn which trading style best suits you by taking our DNA FX Quiz.
This lesson looks at building a strategy based on the type of trader that you are.
Many traders rely on the moving average convergence divergence (MACD) indicator, a very versatile tool. Like all other indicators, is simply a guide or, another way to look at price action with some additional assistance. But, simple is sophisticated, and a simple indicator like MACD can be used in a number of ways. We first need to dissect the indicator so that you can see what’s really impacting its value. Let’s start by investigating the most commonly-followed aspect of MACD: The crossover.
How to Enter Trades Using a MACD Crossover
The next part of understanding and using the indicator to learn is the histogram, which can help a new trader put pieces into place when we go in greater depth behind MACD strategies a little later.
The MACD Histogram and How It Works as a Buy/Sell Signal
MACD isn’t the only indicator that can be used for this type of analysis:We’re simply focusing on it because it has multiple moving parts and it’s a great way to learn about how indicators can be incorporated into a strategy. Stochastics can be used as well, and the below article highlights some of the pros and cons between the two. The key here is that there’s no magical indicator significantly better than the rest. Each is just a slightly different way of examining the past.
MACD vs Stochastic: Timing Entries with One or Both Indicators
Lastly, it’s time to look at a MACD trading strategy. This approach uses the various components of the indicator to frame the strategy, and highlights the point that a trader does not necessarily need an inordinate number of tools to succeed.
MACD Trading Strategy:3 Steps to Find a Trend
Real World Application
The real world application from this lesson may look familiar to a previous exercise. The goal here is to see some element of improvement in your ability to identify potential opportunities when using this simple yet utilitarian indicator.
Place trades and review within 24 hours at which point you can manage those positions while further testing the mechanics of your strategy.
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