Simple MACD and EMA trading system is a trend following system. Trend following systems always stands above the rest. When you trade in the direction of the trend there are higher chances that you will win that particular trade. Longer the time frame you use the clearer will the trend become. But in this system we will be using 15 minutes chart. It is an intraday trading strategy. In this trading system we have two main components; EMA 20 and MACD (12, 26, 9). This is one of the most popular trend following strategies among the forex traders today. So let us discuss about the functions of these two technical indicators.
Exponential Moving Average, period 20 (EMA 20)
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.
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.
Trade Execution Details:
Time frame: 15 minutes
Currency pair: Majors
Buying conditions using Simple MACD and EMA Trading strategy:
- The major trend on 15 minutes chart should be up i.e. price should be trading above the 20 EMA.
- The MACD should move in to the positive territory. Note that the MACD should not be in the over bought territory.
- The fast moving oscillator of MACD (which is histogram in the above picture) should cross above the red colored oscillator.
For the selling condition, the exactly opposite of the above rules should be applied.
Simple MACD and EMA Stop Loss and Take profit
Stop loss should be placed 15 pips above/below the entry level and the target should be 30 pips (or you can hold your position to increase your profit until the MACD momentum oscillators crosses in the opposite direction of your trade) above/below the entry price. Which means Risk to reward ratio is 1:2.
Download Free Simple MACD And EMA Trading System