The Violinist trading scheme using MACD indicator

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The Violinist trading scheme using MACD indicator

How to earn on binary options: the Violinist trading scheme

Trading binary options should be not only interesting, but profitable, otherwise the whole meaning of using this financial instrument is lost. If you want optional trading to bring you a considerable profit, we suggest using the trading method called Violinist — it allows closing over 85% of contracts with a profit.

How to earn on binary options, the Violinist tactics: parameters

This trading strategy is based on the most famous stock trading indicator — the Moving Average, which is applied to the chart in combination with the MACD indicator that filters it. That is, the strategy is based on a popular combination of tools that most approaches to market analysis include. But the focus of this approach is that the Moving Average, the main indicator determining the trend, is applied for 7 different periods of movings at once, which makes its trading signal even more accurate. The MACDs’ role in the strategy is traditional — it determines the dynamics and direction of the movement, as well as the market turns. The two indicators generate a complex trading signal, following which you can conclude a deal on an emerging short-term trend.

Building the trading pattern Template

If you have access to a professional trading terminal equipped with a set of technical indicators that can be applied to a quotations chart with the change of settings, then building a template would be easy. In order to show you how the strategy works, we chose the terminal developed by Binomo brokerage company and equipped with all the necessary functions.

The first thing we do is choose a high-volatility asset with a strong trend on the broker’s terminal for daytime trading. We set the quotes chart to M1 interval to trade at a moderate pace. Then we add the MA and MACD indicators to the chart with the following configurations:

– MA, Exponential; line periods of 3, 5, 7, 9, 11 and 13, all blue;

– MA, Exponential; period of moving 55; the line is red;

– MACD, settings left unchanged.

Profitable system of binary options Violinist: the trading rules

Create a technical template on the price chart of the asset. What’s left now is to monitor the work of technical tools and wait for a signal of the indicator to form. It has an easily identifiable form and shows that the market made a turn and the trader can enter the trade with a CALL/PUT option (quotes growing/declining). The signal itself will be displayed as an intercrossing of the blue beam of EMAs and a red moving, with MACD simultaneously crossing the 0 level.

A trader should buy a CALL option (predicting an increase in the asset’s value) when:

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– Blue EMAs cross the red moving average in the upward direction;

– The movings in the MACD indicator window cross the 0 level of the graph upward.

Conclude a deal only after the signal is confirmed by the MACD indicator:

A trader should buy a PUT option (predicting a decline in the asset’s value) when:

– Blue EMAs cross the red moving average in the downward direction;

– The movings in the MACD indicator window cross the 0 level of the graph upward.

Conclude a deal only after the signal is confirmed by the MACD indicator:

The indicators can also form an additional trading signal displayed as a consolidating the blue shifts above/below the red moving and the intercrossing of the MACD lines. The signal of this type indicates a continuation of the trend and allows to conclude an additional deal:

Choosing the expiration time

This strategy is used on the M1 timeframe, however you can apply it to other intervals with similar efficiency. In this case, you should set expiration for a formation of at least 5 price candles. Taking into account the duration of the trading signal, the expiration time on a M1 timeframe can be within 5-10 minutes.

Money Management

When trading with this system, it is best to follow the classical rules of risk management, limiting the amount of the option to 5% of the trading capital. If you have a small trading deposit, trade the minimum possible options before you increase. For instance, the minimum contract for Binomo is only 1 dollar

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Forex Training Group

The MACD is one of the most popular and broadly used indicators for Forex trading. The letters M.A.C.D. is abbreviation for Moving Average Convergence Divergence. The MACD indicator, which requires Moving Averages as its input, falls into the group of the lagging indicators.

The basic function of the MACD Forex indicator is to discover new trends and to help identify the end of current trends. There are various ways to gauge the signals generated by MACD, and many traders use their own unique settings and methods around this trading indicator.

Understanding the MACD Indicator

The MACD indicator is typically placed at the bottom of the trading chart, in a separate window, beneath the price chart.

The Moving Average Convergence Divergence is a relatively easy-to-use tool, however, it is crucial to understand it fully before attempting to trade using its signals.

Let’s take a close look at the structure of the MACD indicator and its default settings.

MACD Structure

The MACD indicator consists of three components. There are two lines and a histogram. Let’s now discuss each of these separately:

  • MACD Line – The MACD line is the faster line on the indicator. Since it reacts faster it and is more sensitive, it generally moves above and below the second line of the indicator.
  • MACD Signal Line – The MACD signal line is the second line of the MACD indicator. It is called a signal line, because it generates the basic MACD signals. Since the line is slower, it gets frequently breached by the faster MACD line.
  • MACD Histogram – The MACD histogram simply represents the difference between the MACD line and the signal line. The bigger the gap between the lines, the higher the bars that the MACD histogram will display.

Below you will see an example of the MACD indicator:

This is a zoomed image of the MACD indicator. The blue line is the MACD line. The red line is the signal line. As you see, the MACD line is faster and it often breaks the signal line. The gray bars are the histogram, which move in harmony with the distance between the two lines of the indicator.

MACD Settings

On most trading platforms, the MACD indicator typically comes with the default parameters 26, 12, and 9. We will interpret the meaning of these three numbers and how they apply to the structure of the indicator.

The “12” and “26” are mutually related. These two numbers concern the calculation of the faster MACD line. The structure of the MACD line comes with calculating a 12-period Exponential Moving Average on the price action and then subtracting a 26-period Exponential Moving Average from the result. The difference between the two EMAs gives you the value of the faster line.

The “9” comes from the calculation of the slower line a.k.a. the signal line. This line is a product of a 9-period Exponential Moving Average plotted on the faster MACD line. This is why the signal line is slower than the MACD line – because it is the smoother version of the MACD line.

MACD Signals

Although the MACD indicator consists only of three components (the two lines and the histogram) it can provide a myriad of signals. We recognize six basic signals of the MACD and now we will discuss each of these separately.

MACD Crossovers

The MACD crossovers involve the interaction between the two MACD lines. The MACD line is faster than the signal line, and it will typically cross above and below the slower signal line.

  • Bullish MACD Crossover – We have a bullish MACD crossover when the MACD line crosses the slower signal line in the bullish direction. This action generates a bullish signal on the chart, which implies that the price might start an increase.
  • Bearish MACD Crossover – The bearish MACD crossover is opposite to the bullish MACD crossover. When the MACD line crosses the signal line in the bearish direction, we have a bearish crossover. This hints that the price action might be entering a bearish move.

Above you see a bullish MACD crossover. The green circle shows the moment when the faster MACD line crosses the signal line in the bullish direction. The price action increases afterwards.

MACD Divergence

One of the best uses of the MACD study in Forex trading is in identifying divergence signals. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions.

  • Bullish MACD Divergence – A bullish MACD divergence occurs when the price action is moving downwards and the MACD is showing higher bottoms. In this case, the MACD indicator is giving us a strong bullish signal. Very often we will see price begin a strong upwards move after a bullish divergence with the MACD. Below you see an example of a Bullish MACD Divergence. After the occurrence of the divergence we see that the price starts an uptrend.
  • Bearish MACD Divergence – The bearish MACD divergence happens when the price action is increasing and the MACD lines are creating lower tops. The bearish divergence by the MACD hints that the price might start a bearish move. In many cases, we will see a rapid bearish move after a bearish MACD divergence.

MACD Overbought/Oversold

Many people don’t know this about the MACD indicator, but the MACD indicator can also provide overbought/oversold signals as well.

  • Overbought MACD – The MACD is overbought when the MACD line gains a relatively big distance from the signal line. In such cases, we expect the bullish move to exhaust after the strong increase and a bearish move to appear.
  • Oversold MACD – The oversold MACD signal is opposite to the overbought signal. When the MACD line gains a relatively significant bearish distance from the signal line, then you are getting an oversold MACD signal. In this case we expect the price to exhaust in its decrease and to initiate a new bullish move.

In the green rectangle on the image above you see a case where the fast MACD line gains a relatively big distance from the red signal line. This indicates an oversold MACD signal. The price of the Forex pair increases afterwards.

Technical Analysis Using MACD

As you see, the MACD indicator is pretty rich on technical signals, and is a very versatile trading tool. You can also trade effectively by using MACD in combination with price action analysis. Let’s have a look some trading examples using the MACD below:

Above you see the MACD indicator applied to an MT4 chart. The indicator is attached at the bottom of the price graph. The image starts with a bearish divergence between the price action and the MACD indicator. As you see, the price creates higher highs, while the tops of the MACD indicator are decreasing (blue). The two MACD lines cross afterwards and the price drops. Then we see four more price swings related with bullish and bearish MACD crossovers. Every time the two lines cross we see a price swing in the direction of the crossover. Now let’s shift to another example using MACD analysis:

In this case, the price decreases after a bearish MACD crossover. However, 7 periods later we see a potential oversold MACD signal. The MACD line gains a significant bearish distance from the signal line. This implies that the Forex pair may be oversold and ready for a bounce. As you see, the price increases afterwards.

Forex MACD Trading System

Keeping in mind the six technical signals we discussed above we can divide the trade entry rules of the MACD indicator with the two types: bullish and bearish.

Bullish MACD Signals – Consider opening long trades after each of these three signals.

  • Bullish MACD Crossover
  • Bullish MACD Divergence
  • Oversold MACD

Bearish MACD Signals – Consider opening short trades after each of these three signals.

  • Bearish MACD Crossover
  • Bearish MACD Divergence
  • Overbought MACD

Stop Loss on MACD Trades

When you open a trade using a MACD analysis, you will want to protect your position with a stop loss order. To place your stop loss order effectively, you should refer to the chart for previous price action swing points.

If you are opening a long trade, you could place your stop loss below a previous bottom on the chart. If you trade short, then you could place your stop loss order above a previous top. If the price action creates a lower low on a long trade, or higher high on a short trade, your position will be closed automatically.

Taking Profit on MACD Trades

One way to exit a MACD trade is to hold until you receive an opposite signal. So a contrary MACD signal would be your signal to close out your trade. However, there are many other ways to manage your trade based on your personal preferences.

MACD Trading Strategy Example

Now let’s look at an example of a MACD trading method with price action analysis:

Above you see the H4 chart of the EUR/USD Forex pair for July, 2020. The image shows a couple of trades on the chart that incorporates the MACD lines and histogram.

The first trading signal comes when the price action creates an Inverted Hammer candle pattern after a decrease. A few periods later we see that the MACD lines create a bullish crossover. These are two matching bullish signals, which can be a sufficient premise for a long trade. You could buy the EUR/USD currency pair as shown by the first green circle on the price chart. A stop loss order should be placed below the bottom created at the moment of the reversal, as shown on the image.

The price increases afterwards and creates an AB=CD type pattern. This would have been an optimal exit point. After the creation of the last high, we see a reversing move, followed by a trend line breakout. At the same time, the MACD lines cross in bearish direction. These are two separate exit signals, which unfortunately come a bit late. If you closed the trade here, the trade would still have been slightly profitable.

One thing to note is that the trend line breakout and the bearish MACD crossover generate matching short signals on the chart, meaning that this could provide for a short trade opportunity.

The price starts decreasing afterwards with the creation of a new bearish trend. The MACD lines decrease as well. After a 6-day decrease, the two MACD lines create a higher bottom, while the price action is still decreasing. This creates a bullish MACD divergence on the chart. As such, you should exit the trade when the MACD lines cross upwards. This happens just a couple periods later, confirming the Bullish Divergence pattern. Notice that we didn’t hold the trade until the bearish trend line breakout, because there was sufficient reason from the MACD divergence formation to close earlier.

Trading MACD Divergence in Forex

Divergence trading is one of the most popular and effective Forex strategies. However, one downside with Divergence is that prices can stay in a divergent formation for quite some time without reversing, and it can sometimes be difficult to know when to enter this type of counter trend setup. Keeping a close eye on emerging price action patterns can be helpful in trading divergences.

This time we have the H1 chart of the USD/CHF a.k.a. the Swissy. The image depicts how we might trade a MACD divergence pattern.

The image begins with a sharp price drop. Suddenly the decrease slows down. At the same time, the MACD not only slows down, but it starts increasing, creating a bullish divergence. A bullish MACD crossover appears afterwards. You could have opened the trade based on this signal.

If you did, you would likely have gotten stopped out on this first entry. Shortly after, we get a Hammer Reversal candle, which provides additional confirmation of the bullish scenario.

The stop loss on the trade should be located below the Hammer Reversal candle as shown on the image.

You can see that the price creates a few swings while attempting to break in the bullish direction. However, the stop order is well positioned below the Hammer formation and the trade survives the pressure of the bears.

The price starts an increase afterwards. But on the way up we notice that the price action starts creating smaller swings. Soon after, we discover the Rising Wedge chart pattern on the image. Since the Rising Wedge has a strong bearish potential, a breakdown through its lower level could be used in combination with a bearish MACD cross to close the trade.

In our case, the MACD lines cross downwards right at the moment of the bearish wedge breakout. This is a strong signal that the price might initiate a decrease. For this reason, the trade should be closed when you receive these confluent exit signals.

You should always be watchful of price action clues when trading MACD divergence. This way you can attain a better understanding of where and when to enter and exit your MACD divergence trades.

Conclusion

  • The MACD indicator is one of the most widely used indicators for Forex trading.
  • MACD is an abbreviation for Moving Average Convergence Divergence.
  • It is calculated using Moving Averages, which makes it a lagging indicator.
  • The main function of the MACD is to discover new trends and to help find the end of present trends.
  • The MACD consists of three components:
    • MACD line – calculated by taking the difference between 12 and 26 period Exponential Moving Averages
    • Signal Line- smoothes the MACD line with 9 periods
    • Histogram – represents the difference between the MACD line and the Signal Line
  • There are 6 basic signals related with the MACD trade indicator:
    • Bullish Crossover – bullish signal
    • Bearish Crossover – bearish signal
    • Bullish Divergence – bullish signal
    • Bearish Divergence – bearish signal
    • Oversold MACD – bullish signal
    • Overbought MACD – bearish signal
  • The MACD indicator provides a myriad on signals, which makes it useful as a good standalone tool, but the best results come when the indicator is combined with price action analysis.
  • These are the basic rules for trading with the MACD indicator:
    • Consider long trades when you see a bullish MACD signal.
    • Consider short trades when you see a bearish MACD signal.
    • If you trade long, you should put a stop below an earlier bottom on the chart.
    • If you trade short, you should put a stop above an earlier top on the chart.
    • Hold your trades until you see an opposite MACD signal or until your stop is hit. You should use price action clues for managing potential exit points.

Listen UP.

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The MACD indicator – How To Use The MACD Correctly

The MACD indicator – How To Use The MACD Correctly

The MACD is a popular momentum and trend-following indicator that is based on the information of moving averages and, thus, ideal to act as an additional momentum tool and momentum filter for your trading. In this article, we will explain what the MACD indicator does, how it helps you analyze price and how to use it in your own trading.

First, let’s take a look at the individual components of the MACD indicator:

MACD Line: The MACD line is the heart of the indicator and by default it’s the difference between the 12-period EMA and the 26-period EMA. This means that the MACD line is basically a complete moving average crossover system by itself.

Signal Line: The Signal line is the 9-period EMA of MACD Line

MACD Histogram: MACD Line – Signal Line

In this article, we focus on the MACD and the signal line in particular. The histogram is derived from the other two components of the MACD and, thus, don’t add as much explanatory value to overall MACD trading.

The basics of the MACD indicator

As I said, the MACD is based on moving averages ad this means that it’s ideal for analyzing momentum, finding trend-following entries and staying in trends until momentum is dying off.

There are 2 MACD signals in particular that we will explore in this article and explain step by step how to use the MACD to find trades:

1) The MACD Line cross 0

Besides the MAXD lines, I also plotted the two moving averages on the charts and it becomes obvious immediately how the MACD works.

When the two MAs cross, the MACD line crosses below 0 as well. As В I said above, the MACD is thus its own moving average crossover system in just one line.

As we know from our moving averages article, a cross of 2 MAs shows a change in momentum and it can often foreshadow the creation of a new trend. So, whenever the MACD Line crosses 0, it shows that momentum is changing and potentially a new trend is just being created.

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1) The Signal Line

When you see the two MACD indicator lines move away from each other, it means that momentum is increasing and the trend is getting stronger. When the two lines are coming closer to each other, it shows that price is losing strength.

However, the MACD is an oscillator and during very strong trends, it won’t give very accurate information. Thus, when you are in a strong trend, don’t get confused by too many crossings of the MACD lines.

TIP: As long as the MACD lines are above 0 and price is above the 12 and 26 EMAs, the trend is still going on.

Trend-following entry

During ranges, the two lines from your MACD are very close together and they hover around 0; this means that there is no momentum and no strength.

At point #1, the price also formed a narrow range and when the price breaks out, the two indicator lines pull away from the 0 line and also separate each other. Then, during a trend, the moving averages can act as support and resistance and stay you in trends as the phase #2 and #4 show – the price never broke the moving averages.

During a consolidation like in point #3, the MACD contracts sharply as well and traders wait for the breakout of the wedge to signal a new trend.

The divergence at#5 is a signal we will explore below and it predicted the reversal. During the downtrend #6, the price then again stayed below the moving averages while the MACD lines stay below 0.

MACD divergences as early entries

MACD divergences are another great way to analyze price and find early trend-following trades.

You can see in the screenshot below how theВ price was moving higher very slowly over a long period of time. At the same time, the MACD moved lower showing that there was no buying strength behind the slow grind. Then, suddenly, price broke below the two moving averages with stronger which happened while the MACD lines crossed below 0 and also separated further. This can be the signal of a new strong downtrend.

Overall, as with most indicators, you probably don’t need them when you can read momentum information directly from your chart. But indicators can be great tools for building confluence and also to create more objectivity in your trading.

HOWEVER, never let anyone tell you that indicators don’t work. They do! It just comes down to how you use them.

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