Forex Strategy «Capture» is based on the indicators of convergence-divergence moving average (MACD or MACD — as it is sometimes called), as well as on the indicator Stochastics (Stochastic Oscillator), which helps traders identify good opportunities for trading in the forex market.
Although the use of data indicators forex quite easily, but their value falls as the market price goes to the trend. But if you still try to combine the power of both oscillators, then Forex traders receive a very good intsrument for making profitable trades.
- First, let’s briefly look at what are the indicators: Stochastics and MACD.
Stochastics (Stochastic Oscillator):
The Stochastic Oscillator was developed in the 50-ies of the 20 th century, and it mainly used to show the location of the current closing price in relation to the range maximum (minimum) currency for a certain period of time. This indicator shows the forex count (influx) of proposals for the purchase or sale of foreign exchange market. When the indicator values are below 20 — the market is oversold, and when the indicator values are above level 80 — the market is overbought.
Stochastics is more suitable for short-term trading, as able to isolate the top and falling prices in the market.
Oscillator MACD (MACD):
MACD-oscillator based on moving averages (26-day and 12-day exponential moving averages (EMA), along with a 9-tidnevnoy EMA, which is the signal) — used in sideways markets. Ie it shows the relationship between prices and not market conditions (oversold or overbought).
Let’s take a step by step look at forex strategy «Hostage» as an example of cross-rate NZDJPY.
After a decline, which has been in the past 24 hours, appeared on the market uptrend since and Stochastics, and MACD oscillator became ascendant.
And so, set the chart for the chosen currency pair (which can be any) Stochastic indicator with parameters 7, 3 and 20 and the indicator MACD (better to choose MACD-combo).
1. Identify a trend. Once the indicator line Stochastics D% turned up, the forex trader is looking for growth or the intersection of the indicator MACD, which in turn determines the longer-term trend.
2. Conclude a deal in the direction of a certain trend.
In our example, the transaction (the figure) a trader opens a trading position for the purchase, because the oscillator and Stochastics, and MACD Oscillator show up. As a result, our 1-I trade deal will be opened at point B.
3. We estimate trading position. Once formed the right conditions, the trading position is open for purchase at the point of capture, and where the entry was made at the closing hour candles on the price level of 94.29. As a result, the stop-loss order was placed below the low of the trading session — 94.01, as required by the rule of risk management.
In this transaction used a trailing stop to the growth of profit to reduce the risk in case of rollback or reversal of the market against a position. The result was a profit: 159 points — until the positive response of stop-loss.
To make a deal to sell the strategy «Capture»:
1. Determine the trend of the MACD indicator
2. We are waiting for the moment when the direction of stochastics (crossed down) and MACD are identical.
3. Open the transaction on sale at the closing hours and opening a new one.
4. Place a stop-loss and Teyk-profit or a trailing stop.
What we can conclude:
The Stochastic indicator is good to use forex for short-term deals, then as the MACD indicator is better used for more long-term trading positions — use these indicators together to enter into good deals.
