Using MACD Histogram: Identify reversals vs continuing trends
What is everyone's opinion of using the MACD histogram for identifying reversals against continuing trends? If you made 10 trades in a month let's say about how many would be trend reversals as opposed to "hopping on" an ongoing trend? I am weighing the opportunities of both but it seems to me that it would be much tougher to identify a reversal (whichever way the reversal is going) as opposed to just confirming a trend and piggy backing on it as far as it goes without showing weakness.
i think that it is generally a bad idea to try and go against the trend, but there will be times that doing so represents a high probability set-up. These opportunities don't show themselves every day, but this is what i look for when trying to catch a reversal:
1. Divergence MUST be present
2. The pair MUST be near MAJOR support/resistance (from Daily or weekly charts)
3. The market MUST be in overbought/sold condition
4. Divergence across multiple time frames is best
I think when these 4 factors are present together, you can catch a decent reversal. But then it becomes all about managing the trade because reversals don't tend to turn into big moves immdiately, so a move to b/e or taking partial profits sooner rather than later is important
I've been backtesting this very model and it looks great. I will be posting chart shots for all to see soon enough. This model looks even better when used in ranging periods. It can also be used to hop on the trend after a pullback.
NOTE: I've been looking at this using WEEKLY & DAILY charts (to identify support and resistance) and 4HR & 1HR time periods (to time entries and exits)