Forex & Stock “MACD Divergence” Trading Strategy

How To Use the MACD Divergence Strategy for Maximizing Your Profits in Both Bull and Bear Markets. So, by the time you finish this video, you’ll know exactly when to enter high probability trade using the MACD indicator.

MACD Divergence signifies a trading approach grounded in the Moving Average Convergence Divergence (MACD) indicator.

MACD, a widely used technical tool, helps traders scrutinize trends and possible shifts in a financial asset’s price movements. It’s composed of two moving averages – a quicker one and a slower one – alongside a histogram that indicates the gap between these averages.

Divergence arises when an asset’s price heads in the opposite direction of the MACD indicator.

This hints at a potential reversal in the price trend. Such divergence, contrasting the price motion and the MACD indicator, offers traders insights into potential shifts in trends and opportunities for making timely trades.

MACD Divergence strategies center on spotting these divergences and translating them into signals for trading choices. Traders typically seek bullish or bearish divergences between the price and the MACD lines to foresee possible reversals in trends or ongoing patterns. These strategies find use in diverse financial markets, including stocks, forex, and commodities, aiding traders in informed decision-making.

• Download “ForexWOT-MACDdivergence” (Zip/RAR File).
• Copy mq4 and ex4 files to your Metatrader Directory …/experts/indicators/
• Copy the “ForexWOT-MACDdivergence.tpl” file (template) to your Metatrader Directory …/templates /
• Start or restart your Metatrader Client.
• Select Chart and Timeframe where you want to test your forex system.
• Right-click on your trading chart and hover on “Template”.
• Move right to select “ForexWOT-MACDdivergence” trading system and strategy.
• You will see the “ForexWOT-MACDdivergence System” is available on your Chart.

In this chart, the price is moving above the 200-period EMA. This confirms that banks and other institutional traders perceive the market as bullish. Therefore, traders simply need to await the formation of a BUY signal.

As the primary trend is BULLISH, the subsequent step is to await the price entering an oversold condition. On the chart, this signifies the price position when the market is oversold.

After a BULLISH market becomes oversold, it acts as an indicator that the market is likely to further extend its bullish trend.

And if we observe the MACD lines, a few candles later, a MACD BULLISH crossover forms below level 0. This is a valid BUY signal.

Within the MACD Divergence strategy, it’s important to introduce an additional significant variable: the emergence of divergence between the market’s price movement and the MACD lines’ movement. Divergence emerges when an asset’s price moves in the opposite direction to the MACD indicator. So, as you can see on this chart, the price movement forms higher lows, while the MACD lines form lower lows. Therefore, this MACD BULLISH crossover formed below level 0 is a BUY signal from the MACD Divergence with a relatively higher probability compared to the MACD crossover and MACD overbought-oversold signals.

Since all trading rules are met, we should promptly initiate a BUY position on the next candle. Because the price closes above the 12-period EMA line, the BUY position we enter is valid.

The subsequent step involves determining a stop loss just below the nearest swing low.

And as you can see, the BUY position we entered is closed with a relatively substantial profit compared to the risk we assume through the stop loss.

 

As you can see on this chart, the price is moving below the 200-period EMA. This indicates that banks and other institutional traders view the market as bearish. Therefore, traders simply need to wait for the SELL signal to form.

Given the main trend being bearish, the next step is to await the price reaching an overbought condition. On the chart, this is the price position when the market is overbought.

Once the BEARISH market becomes overbought, it’s a sign that the market is likely to continue its bearish trend even further.

And if we look at the MACD lines, a few candles later, a MACD BEARISH crossover is formed above level 0. This is a valid SELL signal.

In the MACD Divergence strategy, we need to introduce an important variable: the emergence of divergence between the market’s price movement and the MACD lines’ movement. Divergence appears when an asset’s price moves in the opposite direction to the MACD indicator. So, as you can see on this chart, the price movement forms lower highs, while the MACD lines form higher highs. Therefore, this MACD BEARISH crossover formed above level 0 is a SELL signal from the MACD Divergence with a relatively higher probability compared to the MACD crossover and MACD overbought-oversold signals. This encourages you to consider trading with a larger lot size according to your manageable risk tolerance.

Since all trading rules are met, we must promptly initiate a SELL position on the next candle. Because the price closes below the 12-period EMA line, the SELL position we enter is valid.

The next step is to determine a stop loss just above the nearest swing high.

And as you can see, the SELL position we entered is closed with a relatively substantial profit compared to the risk we take on through the stop loss.

Similar to me, you’ve likely come to the conclusion that MACD is an incredibly powerful and dependable indicator for any trading strategy and trading style you might have.

By attaining proficiency in all aspects of this MACD indicator, you’ll possess adept market analysis skills and the ability to capitalize on every situation to rake in profits in both the Forex and stock markets.