Time frame: I will be using the 4H and 1H time frames but you could use any time frame that is at least 4X greater. Example would be the Daily and 4H or the 1 hour and 15 minute. I have backtested using the 4H and 1H so any examples posted will be using those time frames.
Indicators: MACD 12,26,1. EMAs 100 and 50.
Set-up: Using the 4 hour chart identify the most recent cross of the EMAs. You might want to mark this with a vertical red line just so you can see the same area on the 1H time frame. Now move to the 1H time frame.
Long trade: 50EMA above the 100EMA on 4H chart. On 1 hour chart wait for the MACD to cross up from below the zero to above the zero line. Enter on the close of the 1 hour candle that corresponds to the MACD cross.
Short trade: Opposite of long trade.
Stop loss: If long use the previous swing low. If short use the previous swing high.
Profit taking: Enter at least 2 trades but 3 is good too. First trade TP at 50 pips. Second trade move to BE at 50 pips and TP at 100 pips. Third trade move to BE at 50 pips then move SL up with swing lows until taken out. Backtesting revealed 500+ pip runs.
Don’t use MACD crosses as a way to TP as you will often only break even or take a loss.
Adding trades: As long as the 50 is above the 100 EMA for a long trade or the opposite for a short trade you can enter trades each time the MACD on the 1H time frame crosses above/below the 100. During long 4 hour trends you will notice there are often multiple opportunities for entry.
The attached PDF file at the top of the page outlines modifications to this method as of 1/6/2012. Happy New Year!!!
First chart in previous post is the 4 hour chart showing the cross of the 50 EMA above the 100 EMA. Next 2 charts show where trades were taken when the MACD on 1 hour chart crossed above the zero line.
If we have a cross on higher TF, and MACD in lower TF is already on that direction (eg. UP), must we wait until it crosses down and back up to enter the trade?
On the 4 hour chart the 50 ema is above the 100 ema so looking for long trades only. As per rules we use the 1 hour chart to enter on. Looking at the 1 hour chart there is a MACD cross above the zero line. Two trades entered. You can see SL. SL moved up a bit because of that large spike down.
When 50 ema is above 100 ema we are looking for long trades. The 1 hour time frame is used for entry. On 1 hour chart when the MACD crosses above the zero line and the 1 hour candle closes trades are entered at that time. The signal to enter is the zero cross of the MACD. So the answer to your question is yes.
If you backtest you will see that when the 4 hour emas cross there are usually multiple opportunities to enter on the 1 hour chart before the 4 hour emas recross.
I am trading EURUSD, GBPUSD, AUDUSD, USDCHF and USDCAD. No reason it shouldn’t work on pairs of your choice. I tend to avoid the JPY pairs since the BOJ loves to crash the party.
We use only the MACD on the 1 hour chart for entry. The EMA are only used on the 4 hour chart.
Concerning best time to trade. Since this is a longer term strategy I enter on all valid signals that meet the rule cirteria.
The USDCHF trade got stopped out. :33: In looking at the trade I set my SL too high. Should have put it below the pinbar. That pinbar was a sign of demand at that level. Price will revisit these levels to fill unfilled orders. That’s why we want to set our SLs a little below or above the swings. Yes the SL can be considerable and getting stopped out is no fun especially if its a 100 pips or more. But if you don’t you will get stopped out even more. Backtesting shows that the swings are often dipped back into before moving back with the trend. Beware. Setting tight SLs on this method will get you stopped out more frequently.
I have revised the method. The attached PDF goes into detail with examples. I am trading the method live. I tend to post trades on forexfactoryj - trading using MACD and Bollinger Bands. Check it out.
I have been trading your system and I have been successful with it. Sometimes the best systems are the simpliest.
To stop bouncing between the H4 and H1 for any given symbol, I wrote an EA that will place the comment “Sell ONLY!” or “Buy ONLY!” on the chart so you will know which way to enter the trade when the MACD crosses “0” from the H1 Chart. An Alert message will also pop up when MACD crosses “0” too. I also have a template I use to add to the charts to set them up faster. I would be happy to send them to anyone who e-mails me.
