The MACD Crossover Trading Techniques
In my previous post, I have gone through some of the ways you can make use of forex MACD indicator to trade. If you have read my post, you should have heard of MACD crossover which is a good way to find reversal as well as a good way to confirm a valid breakout.
First of all, let us go through once more what exactly is MACD crossover. When the MACD line cuts through its trigger line southward, you are seeing a bearish crossover. When the MACD line cuts above its trigger line, you are getting a bullish crossover.
Here are how you can make use of the crossover to trade reversal:
1) Look for Reversal Candlestick Pattern: The best way to trade a reversal is to be able to find reversal candlestick pattern on your chart. You should look out for patterns such as railway track, evening or morning star, hammer and hanging man etc.
2) Set up Oscillator Indicator: There are a few indicators that are used as an oscillator and they are Stochastic or Relative strength Indicator (RSI). If you are getting a bullish crossover, you will enter a trade if the oscillator is oversold. If you are seeing a bearish crossover, you should enter your trade if the oscillator is showing a sign of overbought. Using either the stochastic or RSI can help to increase your odds of winning.
If you are tired of entering a trade and then find yourself getting stopped out frequently, this is when the MACD crossover can be useful. It can be used as a tool to help you prevent being stopped out due to fake out which is very common in trading.
Whenever you have a breakout or just simply a trend line break, you should always look at your MACD as a way to confirm the breakout. If there is a breach of trend line but there is no crossover on your MACD indicator, you are likely to be seeing a fake out. However if you have a breach of trend line together with a crossover in your indicator, you are likely to be experiencing a valid breakout.
The above is how you can make good use of your moving average convergence divergence indicator to help you in your trading.
Hope that you find this post useful to you and look out for more useful posts that I will be writing in future.