Risk Disclosure

" is not suitable for all investors and you should make
"Forex trading can involve the risk of loss beyond your initial deposit. It is not suitable for all investors and you should make sure you understand the risks involved; seeking independent advice if necessary"

Tuesday, April 22, 2008

MACD Moving Average Convergence Divergence

A few weeks ago I wrote an article on multiple time frames on my other blog and used and the MACD for the comparisons on 5 min and 30 min time frames. The purpose of the article was to demonstrate that by using different time frames, it was possible to get higher probability trades.

The trade I used for the example seemed to work well so I continued to watch it over the few days as it was not a strategy I used on a daily basis. Here are some of the trades based on the strategy the last few days.

I have used a standard 12, 26, 9 MACD without a histogram as well as a 21 exponential moving average for the trades.

The 30 min chart is used to determine the trade direction and the 5 min chart is used to enter the trade and either buy the dips or sell the peaks according to the direction of the 30 min chart.
Click to enlarge the charts

At 14:30 on the 15th April the MACD Crossed long on the 30 min chart and the first candle opened above the 21 EMA at a price of about 196.00.

The 1 hr chart shows the cross long of the MACD on the 15 th of April at 13:00. I would have preferred a 2 hr chart as the 30 min and 1 hr charts used together can sometimes be confusing. My software does not have a 2hr time frame but for the most part the 1 hr chart worked well for these trades.

The above chart shows the 5 min MACD crossed long at just about the same time as the 30 min chart. By buying the dips and leaving the shorts we had 3 good trades over the following few hours. We could have left the original buy and let it run until the 30 min chart indicated a possible reversal.

Even though the MACD crossed back and forth during the early phase the candles remained above the 21 EMA on the 30 min chart indicating the long was still in tact.

The next 30 min cross was on the 17th April at 10 am, the 5 min chart confirmed at 10:15 when the MACD crossed and the candles opened above the 21 EMA. The first trade produced 200 pips before a reversal and the second entry another 200 pips.

The next cross was on the 18th at 7:30am on the 30 min chart and at about 7:40 the candles on the 5 min chart crossed above the 21 EMA which was our signal to enter the market long at 203.73. Price continued to rally for the rest of the day ending about 500 pips up 208.97.

The trend change came on the 21st when the MACD crossed short and the first candle opened below the 21 EMA confirming the 30 min cross at 9:30. The 5 min cross which happened at 8:50. already confirmed the short trade. Price continued down for about four hundred pips.

This bring us to today's trade where the confusion of using the one hour and 30 min charts together is evident. The 30 min chart had crossed long on the MACD last night and opened above the 21 EMA at about 10: am confirming the earlier cross on the 5 min chart. Again the strategy produced a good rally of two to three hundred pips.

The stop loss is placed below the last low or high on the 5 min chart prior to the candle opening above the 21 EMA. The swings on the GBP/JPY can be quite large so the stop can at times be 50 pips or more.

The 1 hr chart however remains down in spite of about a 180 pip rally. I suppose had their been a histogram the 1 hr would still have been above the zero line confirming the direction.

I have deliberately removed the histogram to give an earlier signal rather than wait for the cross above the zero line.


  1. Use the 30 min MACD no histogram cross to confirm the direction of the trade.
  2. Wait for the 5 min MACD to cross and the first candle to open above or below the 21 EMA before entering the trade in the direction of the 30 min chart.
  3. As long as the 30 min MACD remains in the same direction stay with the trade.
  4. Use the 21 EMA as support or resistance on the 30 min chart to trail the market with a stop loss and lock in profits.
  5. Place initial Stop loss above or below the last high or low prior to the cross of the 21 EMA on the 5 min chart
  6. Use the previous highs or lows or pivots for profit targets on the trades.