Two line MACD with EMAs and Fibonacci retracement ~ forex trading hours during christmas
This is a trend-following system based on the use of several indicators; two EMAs (Exponential Moving Averages), and the MACD (Moving Average Convergence Divergence). I will
also be using the Fibonacci Retracement tool to help determine support and The EMAs are used as opposed to the SMAs (Simple Moving Average) because I feel it provides a faster reaction to the trend. There are three main representations of the MACD; the “One-lined” MACD, which has one line overlaying the histogram; the “Two-lined” MACD, which depicts two lines overlaying the histogram; and the OsMA (short for Oscillator of the Moving Average), which displays only the histogram. In this system, we will use the two lined MACD. On the 1-hour chart, this system requires the use of the two lines of the MACD to help determine the trend, but on 5-minute chart, it only uses the Histogram. We’ll add the 7 EMA, 13 EMA and MACD (we’ll use the default settings for MACD - 12, 26, 9). 7 EMA and 13 EMA Settings:
I. Period: 7 and 13
II. Shift: 0
III. MA Method: Exponential
IV. Apply to: Close.
Find your most recent swing points to draw your Fibonacci.
Trading rules Two line MACD with EMAs
1. The 7 EMA needs to be above the 13 EMA on the 1 hour chart.
2. MACD should be crossed over to the up side on the 1 hour chart.
3. Find your most recent swing points and draw your Fibonacci
retracement. Wait for price to retrace to at least the 38.2% retracement
level and no more than the 78.6% retracement level on the 1 hour chart.
4. Go to your 5 min chart for entry. Ensure at least one candle on the
M5 timeframe closes below the 38.2% Fibonacci retracement level. Wait
until the MACD Histogram forms a new bar above the zero line, then
enter the market with a buy trade at the close of that candle.
5. Stops and limits can be based on previous swing highs and lows on
the five minute or hourly charts. I personally use a 15 to 20 pip stop
based on my entry point. You have to decide this based on your own
risk/reward tolerance. Never risk more than what you see as your profit
Short Trades
1. The 7 EMA needs to be below the 13 EMA on the 1 hour chart.
2. MACD should be crossed to the down side on the 1 hour chart.
3. Find your most recent swing points and draw your Fibonacci
retracement. Wait for price to retrace to at least the 38.2% retracement
level and no more than the 78.6% retracement level on the 1 hour chart.
4. Go to your 5 min chart for entry. Ensure at least one candle on the
M5 timeframe closes above the 38.2% Fibonacci retracement level. Wait
until the MACD Histogram forms a new bar below the zero line, then
enter the market with a sell trade at the close of that candle.
5. Stops and limits can be based on previous swing highs and lows on
the five minute or hourly charts. I personally use a 15 to 20 pip stop
based on my entry point. You have to decide this based on your own
risk/reward tolerance. Never risk more than what you see as your profit
potential.
Fibonacci Retracement
After you have determined your trend as depicted by the EMAs and the MACD,
you want to look for your most recent swing points (swing-highs & swing-
lows). A swing-high is the highest point of the highest candle in a price
movement. A swing-low is the lowest point of the lowest candle or bar in a
price movement. In other words, a swing-high candle must be preceded by a
candle that has its high point lower AND the subsequent candle must also
have its high point lower. Conversely, the swing-low candle must be preceded
by a candle that has its low point higher AND the subsequent candle must also
have its low point higher. The Fibonacci tool is then used to determine a higher
probability retracement once the swing-low and swing-high are established. A
minimum retracement of 38% is required, as seen in the chart below:
A few candles earlier from the chart above, we see that the EMAs came into
bullish alignment, as well, however, once the Fib tool was applied to the chart,
we see that the market continued to retrace beyond the 78% level nullifying
the move as seen below:
However, as we patiently waited for market movement, we see that the bullish
trend reaffirmed (EMAs and MACD re-aligned) and subsequently retraced to
an appropriate level:
EntryOnce the requirements for determining the trend have been satisfied on the
1-hour chart, I drop down to the 5-minute chart to pin-point my entry. Only
the MACD Histogram is used at this time. When a histogram bar pops up from
below the zero line, this signals a bullish entry. A bearish entry is confirmed
when a histogram bar appears below the zero. Also, please take note, in my
videos, I often times refer to the “zero line” as the “water line”.
Remember, the 1-hour chart is used to determine the trend,
and only the 5-min chart is used for the actual entries.
Below is an example of a 5-min entry signal:
Short/Sell Trade ExamplesEURUSD
The 1 Hour Chart
The 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
points are marked on the chart. Find your most recent swing points to
measure your Fib retracement from. I have drawn my Fib Line using the most
recent swing points.
Price has retraced above 50% and
The 5 Min Chart
At point C the histogram has gone below the zero line. At point D enter short
at the close of that candle, because the histogram has gone below the zero
line. Point D marks the entry. Your limit can be the previous swing low on the
1 hour chart or a pivot point. Your stop can be a previous swing high on the 1
hour chart or a pivot point. You have to decide that based on your risk vs.
your reward. Price fell over 100 pips.
Buy/Long Trade Examples
GBPUSD
The 1 Hour chart
The 7 EMA is below the 13 EMA. The MACD is crossed down at point (A). All
points are marked on the chart. Find your most recent swing points to
measure your Fib retracement from. I have drawn my Fib Line using the most
recent swing points.
Price has retraced above 50%
At point C the histogram is above the zero line. At point D enter long at the
close of that candle, because the histogram is above the zero line. The arrow
at point D marks the entry. Your limit can be the previous swing high on the
1 hour chart or a pivot point. You have to decide that based on risk vs. reward.
Price went up over 100 pips.
More info for
Two line MACD with EMAs and Fibonacci retracement ~ forex trading hours during christmas:
