Forex MACD Divergence Strategy
In today post, I shall share with you another strategy that I like to trade with and it is the forex macd divergence strategy.
From the name of this strategy, you roughly should know which indicator we are going to use here. So let me go through with you what exactly is forex macd divergence.
When you see the price making a lower low (forming a down sloping line) while the MACD technical indicator is making a higher low (forming an up sloping line), this is a sign of a positive divergence.
When you see the formation of a positive divergence, it is usually a signal that the price is going to move up.
When you see the price making a higher high (forming an up sloping line) while the macd indicator is creating a lower high (forming a down sloping line), it is a sign of a negative divergence.
Whenever you see such a formation, it is a sign that the price is going to move down.
How to Use this strategy
This is exactly what we are going to do with this strategy, when you see the formation of either one of the above divergence, you will always enter a trade and then use the most recent high or low as your stop loss target.
If you are seeing the formation of a positive macd divergence, you will then place your stop loss at the most recent low. As for the target profit, I will usually suggest you to exit half of your position when the price has move the same amount as your stop loss.
You will then shift the remaining trade to breakeven and the target profit for this remaining position will be twice the stop loss.
However there are times where this strategy also produces losing result. In fact, there is no strategy that wins 100 percent of the time. I must say that the winning percentage of this strategy is pretty decent and with the good risk reward ratio, you will be able to make money from it.
The only problem with this strategy is the occurrence of fake out. Therefore for those of you who has got a copy of my forex trend line strategy book, you will be able to use the technique that I have taught you in the book to identify those fake out and it will in turn increase your winning percentage.
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