2 cross MACD trading system is a trend following trading strategy. It can be used on four hour and the daily time frame. Basically this trading system uses two technical indicators; Exponential moving average and MACD. Exponential moving average is used for trend determining purpose and observing the crossovers while MACD is used to determine the momentum and strength of the price.
Now let us study in detail about these two indicators first.
- Exponential Moving Average
Exponential moving average is little different than that of simple moving average. Exponential moving average (EMA) gives more weight to the latest data. Exponential moving average (EMA) reacts faster to recent price changes than that of the simple moving average. The 12 and 26 period Exponential moving averages are the most poplar short term moving averages. Even the technical indicators like – moving average convergence divergence (MACD) and the percentage price oscillator (PPO) are created using exponential moving average. The 50 and 200 day moving averages are mostly popular for long term trends.
In this strategy we have four exponential moving averages. They are 5 EMA, 15 EMA, 50 EMA and 100 EMA. 5 EMA and 15 EMA are used for the crossover purpose while the other remaining two are used for the trend identifying purpose.
- Moving Average Convergence Divergence (MACD)
Moving average convergence divergence (MACD) is a momentum oscillator indicator. It tells us about the condition of the market trend. It will warn us if the current trading is reversing soon. Simple way of using moving average convergence divergence (MACD) is by using the momentum oscillators cross overs. When the fast moving oscillator crosses above the slow moving oscillator, we understand this as a bullish dominance in the market. While when the fast moving oscillator crosses below the slow moving oscillator, we take it as the seller’s dominance in the market. It is also widely used to trade divergence and to know the overbought and oversold conditions of the market. In this strategy we will use MACD histogram to confirm whether it is in positive territory or not. The MACD histogram’s setting is (12,26,9).
Timeframe and Currency Pair Compatibility for 2 cross MACD trading system
Time frame: 4 hour and Daily
Currency pairs: All
2 Cross and MACD Buy Condition Using 2 cross MACD trading system
- EMA 5 should cross above all the other moving averages.
- Price should be above the 15 EMA
- Price should be above the 50 EMA
- Price should be above the 100 EMA
- MACD histogram should enter in to the positive territory.
2 Cross and MACD Sell Condition Using 2 cross MACD trading system
- EMA 5 should cross below all the other moving averages.
- Price should be below the 15 EMA
- Price should be below the 50 EMA
- Price should be below the 100 EMA.
- MACD histogram should enter in to the negative territory.
2 Cross and MACD Take profit and Stop loss
You should place your stop loss 15 Pips below/above local swing low/high. Take profit once the EMA 5 touches the EMA 15.
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