Divergence between price and indicator is a cool way of knowing when price is about to break and change direction, from buy to sell or sell to buy.
Divergences become increasingly easy to spot when using the right technical tools.
The MACD Forex Divergence strategy is designed to spot profitable buy/sell entries via the use of divergence between currency price and the technical indicator.
In order to ensure flawless divergence based trade entries, we use 3 technical indicators where each can be used to smoothen price, spot trends and locate divergences respectively.
Chart Setup
MetaTrader4 Indicators: (T_S_R)-Execute Line.ex4 (Inputs Variable Modified; period=58), MACD (Default Setting), ds_Hdiv_OsMA_01.ex4 (Inputs Variable Modified; FastEMA=24, SlowEMA=52, SignalSMA=18)
Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day
Recommended Trading Sessions: Any
Currency Pairs: Any pair
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Buy Trade Example
Fig. 1.0
Strategy
Long Entry Rules
Initiate a buy entry if the following indicator or chart pattern gets put on display:
- Watch out for a bullish divergence in the ds_HDiv_OsMA_01 custom indicator i.e. price is experiencing lower lows as exemplified by the dotted red lines, while the ds_HDiv_OsMA_01 indicator dotted lines is also plotting lower highs within the chart window (see Fig. 1.0).
- If the yellow line of the (T_S_R)-Execute Line custom indicator gets aligned somewhat below price bars as shown on Fig. 1.0, it is an indication of upward price pressures i.e. a trigger to go long on the desired currency pair.
- If the green histograms of the MACD MT4 indicator gets positioned above the 0.00 level as depicted on Fig. 1.0, bulls are said to be pushing price higher, as such a buy alert will suffice.
Stop Loss for Buy Entry: Place stop loss 1-3 pips below support.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit if the following rules or conditions takes precedence:
- Watch out for any possible bearish divergences in the ds_HDiv_OsMA_01 custom indicator & price i.e. price action negates the indicator and both seemingly head in opposite directions. This is a trigger to exit or take profit forthwith.
- If the line of the (T_S_R)-Execute Line custom indicator turn magenta, an exit or take profit is duly advised.
- If the green histogram of the MACD MT4 readjust to form below the 0.00 level, it is a trigger to exit or take profit at once.
Sell Entry Rules
Enter a sell order if the following holds sway:
- Look out for a bearish divergence in the ds_HDiv_OsMA_01 custom indicator i.e. price is experiencing higher highs as illustrated by the dotted green lines, while the ds_HDiv_OsMA_01 indicator dotted green lines is also plotting lower lows within the indicator window as seen on Fig. 1.1. Initiate a sell entry in the market.
- If the magenta line of the (T_S_R)-Execute Line custom indicator gets aligned slightly above the candlesticks as exemplified on Fig. 1.1, it is an indication of downward price pressures i.e. a trigger to go short on the designated forex pair.
- If the green histograms of the MACD MT4 indicator realigns below the 0.00 level as shown on Fig. 1.1, bears are said to be taking price lower, as such a sell alert will do.
Stop Loss for Sell Entry: Place stop loss 1-3 pips above resistance.
Exit Strategy/Take Profit for Sell Entry
Exit or take profit if the following takes to the fore:
- Watch out for any possible bullish divergences in the ds_HDiv_OsMA_01 custom indicator i.e. price splits from the indicator and both tend to head in opposite directions (the indicator props up higher highs, while price is revealing lower highs). This is a trigger to exit or take profit immediately.
- If the line of the (T_S_R)-Execute Line custom indicator turn yellow during a sell alert, an exit or take profit is duly recommended.
- If the green histogram of the MACD MT4 readjust to form above the 0.00 level, it is a trigger to exit or take profit forthwith.
Sell Trade Example
Fig. 1.1
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About The Trading Indicators
The (T_S_R)-Execute Line.ex4 or Terminate and Stay Resident Execute Line custom indicator is a moving average line that has a default period of 5, method set at 3 and price is at 0.
The ds_Hdiv_OsMA_01.ex4 custom indicator is an oscillator moving average that also plot price divergences on its indicator window and on the chart window as well, making it easy to spot divergences just by taking a glance at the chart.
The Moving average convergence divergence (MACD) is a trend-following momentum indicator that reveals the connection between two moving averages of price.