MACD Stochastic effective trading strategy
Standard algorithms are good in that their effectiveness has been tested for decades, because they are part of most trading terminals. Combining 2 or more indicators you can get a good TC, strategy Stochastic and MACD - excellent confirmation to that. The trade is in the direction of the trend on the senior time frame, so that the number of false signals is small.
What is part of the free forex strategies that work?
The HW includes:
MACD (Moving Average Convergence Divergence);
Optional - EMA indicator with period 200 as an additional filter.
You can replace the MACD indicator with another tool that indicates the direction of the trend, such as moving averages. MA and Stochastic strategies are quite popular.
Operation algorithm Stochastics
Briefly recall how both Forex indicators work, we will start with Stochastika:
The oscillator indicator is displayed in a separate window, consists of 2 lines - fast and slow;
The quick line (% K) shows the Close price position of the current Japanese candle in the High/Low price range of the specified range;
The slow line (% D) is calculated as a simple moving average line% K.
Oscillator values cannot be outside the range of 0 to 100. During a strong trend, lines simply "stick" to the upper/lower boundary, generating many false signals. We will be interested in crossing lines in overbought/resale zones, the entry strategy Stochastic and MACD provides for this signal.
This is the main disadvantage - any oscillator does not work well on trend areas of the market.
In settings are set:
% K and% D line periods;
The author recommended experimenting with% K period values between 9 and 21.
MACD operation algorithm
MACD is more versatile, although it is in the category of oscillators, but can also work in the trend section of the market. free forex strategies that work
MACD and Stochastic uses it precisely to determine the trend.
The order in which the oscillator values are calculated is as follows:
The histogram is calculated as the difference between the two exponential moving averages (on the screenshot they are shown for clarity);
The signal line is calculated by averaging the histogram values using a simple moving average.
It provides the following signals:
Zero-level histogram crossing. Bottom-up intersection indicates the probability of growth, top-down - we give priority to sales.
A decrease in histogram values in the growing market warns of a possible reversal.
Signals in the form of histogram intersection and signal line strategy MACD and Stochastic do not use. The fact is that the price is smoothed 2 times, so such signals are too late, most of the movement at the time of its receipt is already behind.
TC uses standard Stochastic signals and zero-level MACD histogram crossing.
Stochastic and MACD Strategy Rules
The basic principle of TS - work is carried out only in the direction of trend from the senior time frame. If you plan to trade on the Н1, you will have to consider the behavior of the schedule on the Н4.
The rules of work are as follows (on the example of purchases):
The analysis starts with a four-hour graph and adds MACD with standard parameters 12, 26, 9. Purchases are considered only if the histogram is above zero.
In Н1, the strategy of MACD and Stochastic involves entering the market on the signals of Stochastic, used settings 13, 5, 3. Once the lines cross in the resale area (for long items), a purchase deal is made. Resale/repurchase levels can be set to 20 and 80 respectively. For less volatile assets, 30 and 70 will be suitable.
Stop Loss strategy Stochastic and MACD require placing either behind a signal candle or the nearest local extremum. Fixed teak profit is not used, it is possible to exit on a reverse signal with MACD or to focus on support/resistance levels.
On the screenshot above, Stochastic and MACD 's strategy gave not the best point to enter, the price may well have hooked Stop Loss. Losses under this TS occur, but there are still more profitable deals.
For sales, the reverse rules - the MACD histogram should be below the zero line, and the Stochastika lines should cross in the overbought zone, i.e. above the 80 level.
At the Н1 we are looking for an intersection of the fast and slow lines of Stochastika in the zone of overbought. Stop on the same principle - for the nearest local extremum.
This principle is used in other TOCs, for example, MA and Stochastic strategies instead of or in addition to MACD use 1 or 2 MA to determine the trend on the senior timeframe.
Recommendations for working with the free forex strategies that work
When operating on this vehicle, a number of techniques can be used to improve efficiency:
Pay attention to the position of the line and the histograms of the MACD oscillator. For example, the histogram is above the zero line, but it has already crossed the line from top to bottom, and the histogram is decreasing. This indicates a likely market reversal.
Ignore histogram values close to zero line. Remember the order in which the histogram is calculated - this is the difference between the two moving averages, if its value is close to zero, it indicates that the AI are close to each other and there is no trend.
Consider diversions on both indicators. Although MACD and Stochastic 's strategy doesn 't talk about them, it 's a powerful signal. If the Н4 on the MACD has formed a divergence - this suggests that the trend is slowing down, either a correction or a change of direction is possible.
An additional filter in the form of heavy MA can be used in the MA and Stochastic strategies. If the price is placed above it, we give priority to purchases, if under MA - sales.
On the screenshot above, ЕМА200 helped filter out a section of the flute on which the MACD histogram has already gone below the zero line, but so far it is better to refrain from selling. The strategy of Stochastic and MACD will give less signals, but also the number of loss-making deals will decrease.
On the Н1 of meaning, heavy EMA is small - moving averages with a large period are used only to identify the state of the market, but not to obtain accurate signals (too much lag).
Stochastic and MACD 's strategy is good for being applicable on any currency pair and on any timeframe. Another advantage is that the trader will work in the direction of the trend on the senior timeframe, so that some of the false signals on the working timeslot can be filtered.
It is undesirable to use it on time frames below Н1 - too many false signals. It is best suited for medium-term trade, and the relatively low frequency of transactions can be increased by hiring several currency pairs at once.