If you’re searching for that one trend following strategy that will turn your trading around, then today’s your lucky day. The MACD Trend Following Strategy as the name suggests is one of the best trend following strategies and this strategy is similar to our trend following strategy we have developed a while back. One of the most important features of trend following strategies is that even if you’re wrong on the trade, usually you can limit your losses because ultimately the market will reverse and resume the trend. But, at the same time, which is even more important, it maximizes the potential profit as well.
Our team here at Trading Strategy Guides.com only strives to provide you with the best trading strategies.
The MACD Trend Following Strategy works best on the higher time frames like the 4h chart or the daily chart. So if you’re a swing trader this is the perfect strategy for you. We have developed this trend following strategy because we felt the need to show the world how to properly use the MACD indicator and to show how accurate this tool can be in forecasting market turning points.
Now, if you’re a day trader and don’t like holding positions overnight, don’t you worry we’ve got your back. Our favorite day trading strategy Day Trading Price Action- Simple Price Action Strategy has attracted a lot of interest from the trading community.
Let’s move forward now to the incredible MACD strategy that we have developed. We will show you how to use macd effectively, what a true trend indicator looks like, a super profit indicator, and why we think the MACD indicator is the best trend following indicator.
What is the MACD indicator used in this MACD strategy?
The beauty of the MACD Trend Following Strategy is that it only requires the use of one simple tool: the MACD indicator, which by the way is among the most popular Forex indicator.
Without further ado, let’s move straight to the point and:
- Define what is the MACD indicator;
- How the MACD indicator works;
- What MACD indicator setting to use;
The MACD is one of the most powerful trend following and momentum indicator. The MACD is a commonly used technical indicator and the acronym stands for Moving Average Convergence Divergence.
Put it simple, a trend following indicator helps you to determine the overall direction of the market, be it up (bullish) or down (bearish). While a momentum indicator seeks to determine the speed of the trend. Put them together and you have the perfect combination for a trend following strategy.
A picture is worth a thousand words, so here is how the classical MACD indicator looks like on a chart:
The MACD can provide earlier indication that an OLD trend is about to end and a NEW trend is about to start. The MACD manipulates its moving averages in a rather clever way and can signal changes in trend much closer to when they actually occur. Please have a look at the chart example below to see the power of the MACD indicator.
So, how does it work?
Well, the MACD’s moving averages and histograms (see chart below) are derived from the price chart. They are calculated using a formula which adds greater weight to the most recent price data.
Remember? Price is king!
Our popular Price Action Pin Bar Trading Strategy is a great introduction to what a pure price action strategy should look like and it can be also used in combination with the MACD Trend Following Strategy for higher success rate.