MACD
Introduction
The MACD is an indicator used by
most traders. It is indeed an excellent trend indicator, which overcomes some
of the delays obtained with the use of simple moving averages. It is a none
bounded indicator and so, it can go up or down very low. With the standard
configuration, the MACD is set as 12, 26, 9. The 12 represents the moving
average short-term, 26 the long-term moving average and 9 the number of
periods. For a greater responsiveness to the market, you can use shorter moving
averages or reduce the number of periods but this could lead to a significant
number of false signals.
Application of the method
Entry point: When the MACD line crosses its signal line, you must enter
the market in the side of the crossing. To validate the signal of buy or sell,
you can wait until the MACD line also crosses the zero line. This intersection
confirms the signal previously given. You can choose whether to wait to get
this validation before enter the market. This last reduces the number of signals
and you will loss a part of the movement but in return, a large number of false
signals is eliminated.
Exit Point : The exit occurs when the MACD line crosses back its
signal line.
To sum up:
Advantages: Very easy to use, possibility to not wait for validation;
Allow to take big movements;
Disadvantages: Need time; ineffective if the market is not in trend, it
is never used alone; false signals, sometimes in late.
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Moving average + RSI 1
Introduction
The RSI indicator is bounded between
0 and 100, which indicates areas of overbought and oversold. In fact, more
bullish variations are strong, more the RSI will be close to 100, and more
bearish variations are strong, more the RSI will be close to 0. The levels of
overbought and oversold are placed respectively to 70 and 30. It is a momentum
indicator. The RSI will be set on a 5 period.
Moving averages are trend indicators. In this strategy, we will use only the MA5.
Moving averages are trend indicators. In this strategy, we will use only the MA5.
Application of the method
Entry point: A buy signal is given when the line of resistance of the
horizontal channel is broken. It is necessary to wait at least one candle
closing above the resistance line before enter into the market. This helps to
avoid false signals. Indeed, the resistance can be crossed over briefly (with
shadows of the candlesticks) and may reinstate the horizontal canal.
Conversely, a sell signal is given when the support line of the horizontal
canal is broken.
Before getting in position, wait for the close of the candlestick. This is the close that must be made + or - 10 pips over or below the moving average.
Before getting in position, wait for the close of the candlestick. This is the close that must be made + or - 10 pips over or below the moving average.
Exit Point: The output of the trade can take place at any time. It is
possible to wait for a new crossing of the moving average in the other
direction to exit the trade but it’s not a rule.
To sum up
Advantages: Simple to use, offer good performance; Combine an
indicator of trend and momentum, can stick to the price while benefiting from
significant movements
Disadvantages: You have to be disciplined and stay within the rules to
enter the market ; needs time to monitor the signals; ineffective if the market
has no trend.
