Hello, gentlemen traders! Today we will look at a 5-minute Forex strategy using MACD indicators and moving averages. This trading strategy has been tested on the EURUSD currency pair, but it can also work on other assets.
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Indicators for the MACD + EMA strategy
As always, we start by setting up the schedule. For this strategy, we will use the TradingView service, but you can choose any trading terminal, for example, MT4.
First, let's add the MACD indicator to the chart. In TradingView, click the Indicators button and find the MACD. Click on the indicator and it will be added to the bottom of your chart. Use the default settings.
The following indicators that we need for this Forex trading strategy are exponential Moving Averages (EMA) with two time frames (MFT):
- 50 EMA on a 1-hour timeframe;
- 50 EMA on a 15-minute timeframe.
You need to add the EMA in the same way as the MACD, so do it twice.
After that, you need to configure the EMA as follows. Click on the gear next to the EMA and set the timeframe of the indicator to 15 minutes and the length to 50.
For the second EMA, you do the same, but set the timeframe to 1 hour. You can also adjust the color and thickness on the Style tab.
Once you do that, your graph will look like this:
Trading rules for the MACD + EMA strategy
We open a long position (buy) only when the 15-minute EMA is above the hourly EMA, and we open a short position (sell) only when the 15-minute EMA is below the hourly EMA.
In our example:
- blue line under the orange line = short trades only (sale);
- the blue line above the orange line = only long trades (purchase).
Criteria for a short transaction (sale):
- The 15-minute EMA is lower than the hourly EMA.
- The MACD lines are above the zero mark of the histogram (in the center).
- A higher high on candlesticks and a lower high on MACD lines (bearish divergence).
- The MACD lines should not cross the zero mark of the histogram during the divergence.
- There should be a histogram gap between the divergence, that is, two green hills with a red depression between them.
Criteria for a long transaction (purchase):
- The 15-minute EMA is higher than the hourly EMA.
- The MACD lines are below the zero mark of the histogram (in the center).
- A lower minimum of candles and a higher minimum of MACD lines (bullish divergence).
- The MACD lines should not cross the zero mark of the histogram during the divergence.
- There should be a histogram gap between the divergence, that is, two red depressions with a green hill between them.
Entry into the transaction
When all the criteria are met, wait until the MACD lines intersect in the direction of your trade, and enter immediately. So you don't have to wait for the candle to close.
Stop Loss
Look at the minimum / maximum of the last swing and set a stop-the loss is 2 pips higher or lower than that. A point is the 4th decimal place for the main Forex currency pairs (for JPY pairs - the 2nd decimal place).
Take profit
Set a take profit twice the stop loss. If your stop loss is 10 points, you take profit will be equal to 20 points. Thus, the ratio of your risk and reward is always 1:2.
Examples of transactions
Let's look at some examples of real deals on the MACD + EMA strategy.
Deal #1
In the screenshot above you can see part of the blue 15-minute EMA. The orange EMA is not visible, but it exceeds 15 minutes. This means that we are only looking for short entries to place bets on the falling price.
You can see that the price has reached a higher candle high, while the MACD lines are reaching a lower high. This is a bearish divergence.
The MACD lines are above the zero mark, just touching the histogram, but do not cross the zero line between the discrepancies. The histogram represents a red depression in the interval between the discrepancies.
All criteria are met, therefore, at the intersection of the MACD lines, we open a sell deal. The stop loss is 2 pips above the last maximum of the price, and we set the take profit 2 times more than the stop loss.
After 20 candles, the take profit was taken. Each candle lasts 5 minutes, so the deal was 1 hour 40 minutes.
Deal #2
In this short position, we see that the 15-minute EMA is below the hourly orange EMA. The MACD lines are above the histogram and make up a lower maximum, and candlesticks are a higher maximum. This is a bearish divergence.
The MACD lines do not cross the zero mark, and you see a red depression between the divergences.
All the criteria are correct, so we can open a short trade. The entry is at the intersection of the MACD lines in the direction of the transaction. In this case, 1.2128. The stop loss is 2 pips higher than the previous price maximum, and the take profit is 2 times more than the stop loss.
This deal lasted 24 candles for 5 minutes and closed after 2 hours with a profit of 8 points.
Deal #3
Finally, let's consider a long deal. Here we see a 15-minute EMA above the hourly EMA, so we only need long setups.
Candlesticks show a lower low, and MACD shows a higher low below the histogram. This is a bullish divergence. You can also clearly see the green hill between the two red depressions in the middle of the divergence.
We buy at the MACD intersection in the direction of the transaction with a stop loss 2 pips below the minimum of the last price fluctuation and a target take profit 2 times higher than the stop loss.
This transaction took some time, but finally, after 11 hours of waiting, the target of 13 points of profit was reached.
Conclusions
This Forex strategy has certain rules that must be strictly observed. It is important that you can notice the discrepancies, and it may take some time. As with all trading strategies, you should choose only obvious signals. If in doubt, do not open a deal.
The biggest advantage of this trading strategy is the winning percentage for EURUSD, which currently stands at 61% after testing 100 trades. You can further increase the winning percentage if you take into account the important support and resistance levels.
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