A trading strategy using the MA ALMA

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

Contents

MACD Trend Following Strategy – Simple to Learn Trading Strategy

If you’re searching for a trend following strategy that will turn your trading around, today’s your lucky day. The MACD Trend Following Strategy, as the name suggests, is one of the best trend following strategies to use. This strategy is similar to the trend following strategy we developed previously.

Even if you’re wrong on a trade, one of the most important features of trend following strategies is that you can usually limit your losses. This is because, ultimately, the market will reverse and resume the trend. But more importantly, it maximizes your potential profit at the same time. This strategy is included in our complete list of the best trading strategies compiled on the internet.

Our team here at Trading Strategy Guides.com strive 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 developed this trend following strategy to show the world how to properly use the MACD indicator. Our goal is 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 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.

Now, let’s move on to the incredible MACD strategy we developed for our traders. We will show you how to use MACD effectively, what a true trend indicator looks like, and a super profit indicator. You’ll also learn why we think the MACD indicator is the best trend following indicator. Here is another strategy called, The PPG Forex Trading Strategy.

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. By the way, this is among the most popular Forex indicators.

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. The acronym stands for Moving Average Convergence Divergence.

In simple terms, a trend following indicator helps you to determine the overall direction of the market. Whether it is up (bullish divergence) or down (bearish divergence). On the other hand, 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 an 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. It 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.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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 movements 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. It can be also used in combination with the MACD Trend Following Strategy for a higher success rate.

What about the indicator setting?

The preferred settings for the MACD indicator are the default settings.

MACD Settings

Let’s move forward to the most important part of this article: the buy/sell rules of the MACD Trend Following Strategy.

Now, before we go any further, please take a piece of paper and a pen and note down the rules.

Let’s get started…..

Note** Some reported to us that the Default MACD indicator on MT4 does not have these two lines like you see in our example. You can find a version for the strategy here on Forex Factory: https://www.forexfactory.com/showthread.php?t=69409

MACD Trend Following Strategy

(Rules for A Buy Trade)

Step #1: Wait for the MACD lines to develop a higher high followed by a lower high swing point.

This is an unorthodox approach to technical analysis. But, we at Trading Strategy Guides.com are different. We don’t mind doing uncomfortable things if that’s what it takes to succeed in this business.

First, let’s visualize how an authentic swing point really looks on the MACD indicator:

The first rule of thumb to recognize a swing high on the MACD indicator is to look at the price chart if the respective currency pair is doing a swing high the same as the MACD indicator does. A higher high is the highest swing price point on a chart and must be higher than all previous swing high points. While a lower high happens when the swing point is lower than the previous swing high point.

This brings us to the next rule of the MACD Trend Following Strategy.

Step #2: Connect the MACD line swing points that you have identified in Step #1 with a trendline.

This step is quite simple, right?

See below, how your chart should look like after you correctly identified the swing points on the MACD indicator and connected them through a trendline.

At this point, we really ignored the MACD histogram because much of the information contained by the histogram is already showing up by the moving averages. Look at the price action now and compare it to our MACD trendline we drew early. We can clearly notice that the MACD contains the price action much better and reflects the trend much clear.

But, at this point, we’re still not done with the MACD indicator, which brings us to the critical part of our MACD Trend Following Strategy.

Step #3: Wait for the MACD line to break above the trendline. (Entry at the market price as soon as the MACD line breaks above).

When the MACD line (the blue line) crosses the signal line (the orange line) it’s an early signal that a bullish trend might start. However, if trading would be that easy we would all be millionaires, right? And that’s the reason why our MACD Trend Following Strategy is so unique. We’re not only waiting for the MACD moving averages to cross over but we also have our other criteria for the price action to break aka the trend line we drew early.

This is a clever way to filter out the false MACD signals, but you have to be equipped with the right mindset and have patience until all the piece of the puzzle come together. If you were to trade just based on the MACD crossover over time you’ll lose money because that’s not a reliable strategy. But if you use the MACD indicator along with other criteria such what this strategy tells you to do, you will find great trade entries on a consistent basis.

Step #4: Use Protective Stop Loss Order. (Place the SL below the most recent swing low).

Now, that you already know how to enter a trade at this point you have to learn how to manage risk and where to place the SL. After all, a trader is basically a risk manager.

You want to place your stop loss below the most recent low, like in the figure below. But make sure you add a buffer of 5-10 pips away from the low, to protect yourself from possible false breakouts.

The MACD Trend Following Strategy triggered the buy signal right at the start of a new trend and what is most important the timing is more than perfection. We bought EUR/USD the same day the bullish divergence trend started.

Now, what this has to do with the SL?

Basically, a good entry price means a smaller stop loss and ultimately it means you’ll lose a lot less comparing it with the profit potential, so a positive risk to reward ratio.

Step #5: Take Profit when the MACD crossover happens in the opposite direction of our entry.

Knowing when to take profit is as important as knowing when to enter a trade. However, we want to make sure we don’t use the same trading technique as for our entry order. When the MACD line (the blue line) produces signal line crossovers (the orange line) we want to close the position and take full profits.

Before taking profits, it’s important to wait for the candle close – either the 4h or the daily candle – depending on the time frame you trade so you make sure the MACD crossover actually happens.

Note** The above was an example of a buy trade using the MACD Trend Following Strategy. Use the exact same rules – but in reverse – for a sell trade. In the figure below you can see an actual SELL trade example using the MACD Trend Following Strategy.

Take a look:

We’ve applied the same Step #1 and Step#2 to help us draw the trendline and followed Step #3 to trigger our trade

Conclusion:

The MACD Trend Following Strategy is a very simple trend following strategy and yet a very profitable strategy at the same time. As the saying goes, “The trend is your friend” and no matter if you’re just starting as a Forex trader or you’re already an established trader life is much easier when trading in the direction of the line of least resistance rather than fighting the trend which is a loser’s game.

The success behind the MACD Trend Following Strategy is derived from one simple principle: momentum precedes price. Our team at Trading Strategy Guides.com doesn’t claim to be perfect, but we have a solid understanding of how the market works. For those of you who are not fans of higher time frames and swing trading, we recommend the “Day Trading Price Action- Simple Price Action Strategy” which can be more suitable for your trading style.

Thank you for reading!

Please leave a comment below if you have any questions about MACD Trend Following Strategy!

Also, please give this strategy a 5 star if you enjoyed it!

(33 votes, average: 4.76 out of 5)
Loading.

Like this Strategy? Grab the Free PDF Strategy Report that includes other helpful information like more details, more chart images, and many other examples of this strategy in action!

Tap on the E-Book Cover Below to get your copy of this Free strategy today.

Please Share this Trading Strategy Below and keep it for your own personal use! Thanks Traders!

Arnaud Legoux Moving Averages — Responsive and Smooth Indicator

Moving averages have a reputation of an entry-level tool with limited capabilities. However, when applied correctly, they are much more complex and useful than it may seem. Today we are taking a closer look at an interesting variation of moving average that can become a valuable addition to your personal arsenal of technical analysis tools. ALMA is a relatively new indicator, that has made its first appearance as recently as 2009. It can be used for all assets and on all timeframes. It can be found in the ‘Moving Average’ tab of the ‘Indicators’ menu of the IQ Option trade room.

How to find: Indicators — Moving Average — ALMA

Why use it?

What’s the point of any moving average? To smooth out the trend line and give the trader the general idea of the trend direction and strength. But why would anyone want just another moving average, don’t we already have plenty of them? Both yes and no. There are in fact numerous MA types, each of them calculated and applied slightly differently. ALMA was designed in order to address two issues, often spotted in different MA types: smoothness and responsiveness. When using, say, a simple moving average, you may notice that the smoother it is, the longer it takes to provide a signal. It may even be that when the signal is delivered, the move you’ve been waiting for is already over. On the other hand, a shorter-term MA, while being more responsive, can appear choppy. Therefore, when using a traditional moving average, you have to choose between responsiveness and smoothness. Arnaud Legoux moving average was created with the purpose of solving this exact problem.

How to trade with ALMA?

There are several ways to apply ALMA in trading.

First, you can use ALMA as a dynamic support/resistance level. During a strong uptrend, the asset price will remain above ALMA. During a strong downtrend, the price will remain below the moving average. It is, therefore, possible to trade retracements and breakouts as with any other support and resistance tool. It is also possible to include Stochastic in the trading system in order to identify oversold and overbought positions. When two indicators work simultaneously, their signals can confirm each other.

Stochastic is in the overbought zone, price breaks below ALMA

Another way to trade using this indicator is with the help of exponential moving average (EMA). Some traders would recommend using ALMA with a period of 50 and two exponential moving averages with periods of 5 and 10. The idea behind the strategy is simple: when 5- and 10-period EMAs intersect and the asset price is above ALMA, traders consider opening a ‘BUY’ position; when 5- and 10-period EMAs intersect and the asset price is below ALMA, traders consider opening a ‘SELL’ position. But remember that no trading system can be 100% accurate.

EMA crossover, price closes above ALMA

Finally, you can pair ALMA with Parabolic SAR. The most common technique when using this combination would be as follows : when the asset closing price is below ALMA and Parabolic SAR plots above the high price, traders consider opening a ‘SELL’ position. When the asset closing price is above ALMA and Parabolic SAR plots below the high price, traders consider opening a ‘BUY position. But remember that no trading system can be 100% accurate.

Parabolic plots below the price, price is above ALMA

Note that you can come up with a trading system of your own, adding different indicators to ALMA. Just make sure to test the system on a demo account before trading on a real one.

How to set up?

This indicator can be found under the ‘Moving Average’ tab that appears when you click the ‘Indicators’ button in the bottom left corner of the screen.

ALMA has quite a few parameters to adjust. Period is the number of candles that will be used for the purposes of calculation. Source is the type of price that would be used: open, close, highest or lowest. The offset is a parameter that is used to make the curve either more responsive or smooth. Sigma is a parameter used for the filter and also has to do with responsiveness/smoothness of the line. Until stated otherwise, most strategies utilize the indicator with default parameters.

It should be noted that no moving average should be used on its own for decision-making purposes. However, they constitute an incredible complementary tool. Try ALMA

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.

GENERAL RISK WARNING

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
87% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How to Trade With Exponential Moving Average Strategy

The exponential moving average is the oldest form of technical analysis. It is one of the most popular trading indicators used by thousands of traders. In this step-by-step guide, you’ll learn a simple exponential moving average strategy. Use what you learn to turn your trading around and become a successful, long-term trader! A moving average can be a very effective indicator. Many traders use exponential moving averages, an effective type of moving average indicator, to trade in a variety of markets.

An exponential moving average strategy, or EMA strategy, is used to identify the predominant trend in the market. It can also provide the support and resistance level to execute your trade.

Our team at Trading Strategy Guides has already covered the topic, trend following systems. You can review the trend here, MACD Trend Following Strategy – Simple to Learn Trading Strategy. You can also learn the basics of support and resistance here, Support and Resistance Zones – Road to Successful Trading.

Make sure you go through the recommended articles if you want to better understand how the market works. Building a foundation of understanding will help you dramatically improve your outcomes as a trader.

The Exponential Moving Average EMA Strategy is a universal trading strategy that works in all markets. This includes stocks, indices, Forex, currencies, and the crypto-currencies market, like the virtual currency Bitcoin. If the exponential moving average strategy works on any type of market, they work for any time frame. In simple terms, you can trade with it on your preferred chart. Also, read the hidden secrets of moving average.

Let’s first examine what a moving average is and the exponential moving average formula. After, we will dive into some of the key rules of the exponential moving average strategy,

Exponential Moving Average Formula and Exponential Moving Average Explained

The exponential moving average is a line on the price chart that uses a mathematical formula to smooth out the price action. It shows the average price over a certain period of time. The EMA formula puts more weight on the recent price. This means it’s more reliable because it reacts faster to the latest changes in price data.

An exponential moving average tries to reduce confusion and noise of everyday price action. Second, the moving average smooths the price and reveals the trend. It even sometimes reveals patterns that you can’t see. The average is also more reliable and accurate in forecasting future changes in the market price.

There are 3 steps for the exponential moving average formula and calculating the EMA. The formula uses a simple moving average SMA as the starting point for the EMA value. To calculate the SMA, take the sum of the number of time periods and divide by 20.

We need a multiplier that makes the moving average put more focus on the most recent price.

The moving average formula brings all these values together. They make up the moving average.

The exponential moving average formula below is for a 20-day EMA:

Initial SMA = 20-period sum / 20
Multiplier = (2 / (Time periods + 1) ) = (2 / (20 + 1) ) = 0.0952(9.52%)
EMA = x multiplier + EMA(previous day).

The general rule is that if the price trades above the moving average, we’re in an uptrend. As long as we stay above the exponential moving average, we should expect higher prices. Conversely, if we’re trading below, we’re in a downtrend. As long as we trade below the moving average, we should expect lower prices.

Before we go any further, we always recommend writing down the trading rules on a piece of paper. This exercise will step up your learning curve and you’ll become a better trader.

Let’s get started…

Exponential Moving Average Strategy

(Trading Rules – Sell Trade)

Our exponential moving average strategy is comprised of two elements. The first degree to capture a new trend is to use two exponential moving averages as an entry filter.

By using one moving average with a longer period and one with a shorter period, we automate the strategy. This removes any form of subjectivity from our trading process.

Step #1: Plot on your chart the 20 and 50 EMA

The first step is to properly set up our charts with the right moving averages. We can identify the EMA crossover at the later stage. The exponential moving average strategy uses the 20 and 50 periods EMA.

Most standard trading platforms come with default moving average indicators. It should not be a problem to locate the EMA either on your MT4 platform or Tradingview.

Now, we’re set to go a look more closely to the price structure. This brings us to the next step of the strategy.

Step #2: Wait for the EMA crossover and for the price to trade above the 20 and 50 EMA.

The second rule of this moving average strategy is the need for the price to trade above both 20 and 50 EMA. Secondly, we need to wait for the EMA crossover, which will add weight to the bullish case.

We refer to the EMA crossover for a buy trade when the 50-EMA crosses above the 50-EMA.

By looking at the EMA crossover, we create an automatic buy and sell signals.

Since the market is prone to false breakouts, we need more evidence than a simple EMA crossover. At this stage, we don’t know if the bullish sentiment is strong enough to push the price further after we buy to make a profit.

To avoid the false breakout, we added a new confluence to support our view. This brings us to the next step of the strategy.

Step #3: Wait for the zone between 20 and 50 EMA to be tested at least twice, then look for buying opportunities.

The conviction behind this moving average strategy relies on multiple factors. After the EMA crossover happened, we need to exercise more patience. We will wait for two successive and successful retests of the zone between the 20 and 50 EMA.

The two successful retests of the zone between 20 and 50 EMA give the market enough time to develop a trend.

Never forget that no price is too high to buy in trading. And no price is too low to sell.

Note* When we refer to the “zone between 20 and 50EMA,” we actually don’t mean that the price needs to trade in the space between the two moving averages.

We just wanted to cover the whole price spectrum between the two EMAs. This is because the price will only briefly touch the shorter moving average (20-EMA). But this is still a successful retest.

Now, we still need to define where exactly we are going to buy. This brings us to the next step of the strategy.

Step #4: Buy at the market when we retest the zone between 20 and 50 EMA for the third time.

If the price successfully retests the zone between 20 and 50 EMA for the third time, we go ahead and buy at the market price. We now have enough evidence that the bullish momentum is strong to continue pushing this market higher.

Now, we still need to define where to place our protective stop loss and where to take profits. This brings us to the next step of the strategy.

Step #5: Place the protective Stop Los 20 pips below the 50 EMA

After the EMA crossover happened, and after we had two successive retests, we know the trend is up. As long as we trade above both exponential moving averages the trend remains intact.

In this regard, we place our protective stop loss 20 pips below the 50 EMA. We added a buffer of 20 pips because we understand we’re not living in a perfect world. The market is prone to do false breakouts.

The last part of our EMA strategy is the exit strategy. It is based again on the exponential moving average.

Step #6: Take Profit once we break and close below the 50-EMA

In this particular case, we don’t use the same exit technique as our entry technique, which was based on the EMA crossover.

If we waited for the EMA crossover to happen on the other side, we would have given back some of the potential profits. We need to consider the fact that the exponential moving averages are a lagging indicator.

The exponential moving average formula used to plot our EMAs allow us to still take profits right at the time the market is about to reverse.

Note** The above was an example of a BUY trade. Use the same rules – but in reverse – for a SELL trade. However, because the market goes down much faster, we sell on the 1st retest of the zone between 20 and 50. After the EMA crossover happened.

In the figure below, you can see an actual SELL trade example, using our strategy.

Summary

The exponential moving average strategy is a classic example of how to construct a simple EMA crossover system. With this exponential moving average system, we’re not trying to predict the market. We’re trying to react to the current market condition, which is a much better way to trade.

The advantage of our trading strategy stands in the exponential moving average formula. It plots a much smoother EMA that gives better entries and exits.

We understand there are different trading styles. If following term trends are not for you, try reading our Best Short Term Trading Strategy – Profitable Short Term Trading Tips. It reveals a short-term trading trick used by institutional traders.

Thank you for reading!

Please leave a comment below if you have any questions about the Moving Average Strategy!

Also, please give this strategy a 5 star if you enjoyed it!

(73 votes, average: 4.34 out of 5)
Loading.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

Like this post? Please share to your friends:
Binary Options Trading Education
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: