A Simple MACD Strategy

08/20/2013 9:00 am EST

Focus: FOREX

Creating a forex trading strategy does not have to be a difficult process, writes Walker England of DailyFX.com, and here he reviews a simple MACD strategy for trending markets.

It can be extremely difficult for new traders to finalize a trading strategy for trading the forex market. The options for market entry are virtually unlimited, and it is often good to have a simple strategy on standby. Today we are going to review the basics of a simple MACD strategy, based on finding the trend then utilizing an indicator for execution. So let’s get started!

Find the Trend
The first step to trading any successful trend-based strategy is to find the trend! One of easiest ways to find the trend is through the drawing of a trendline. Traders can connect the lows in an uptrend and find a clear area of where price is supported. Below we can find an ascending trendline on the EUR/CAD.

Given the information above, traders should look to buy the EUR/CAD as long as it remains supported. If the trend continues, expectations are that price will remain above support and new highs will be created.

EUR/CAD Trendline

chart
(Created using FXCM’s Marketscope 2.0 charts)
Click to Enlarge

MACD Entry
Once a trendline is drawn, and a trading bias has been established, traders will begin looking for areas to enter new positions. One of the easiest ways to find a technical trigger is through the use of an indicator. Below we can see the EUR/CAD daily graph, this time with MACD added. Since we have identified the EUR/CAD in an uptrend, traders will look to buy when the MACD momentum returns to the underlying currency pair. This occurs when the red MACD line crosses over the blue signal line, prior to executing their orders.

Below you will find several examples of past MACD crossovers on the EUR/CAD. Note how only buy positions are to be taken on bullish crossovers as the uptrend continues.

EUR/USD & CCI

chart
(Created using FXCM’s Marketscope 2.0 charts)
Click to Enlarge

Manage Risk
When trading markets, there will always be a degree of risk. When trading trends, it is important to know that they will eventually come to an end. In an uptrend like the EUR/CAD, traders may place stops under the established line of trendline support. In the event that price breaks under support, traders will wish to exit any existing positions and look for other opportunities.

By Walker England, Trading Instructor, DailyFX.com

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