This strategy will teach you to easily detect trend reversal and use it to your advantage.
Timeframe: all
Currency pairs: all
Market state: reversal
Required indicators:
- MACD (12, 26, 9)
- Bollinger Bands (100, close, 2, 0)
The main indicator in this strategy is MACD. It will help you detect divergence. Additionally, we will use Bollinger Bands to identify ‘extreme' prices that might signal the reversal of the trend. This additional filter will help you increase the accuracy of the detected signals.
To find the divergence in a Sell order, you need to draw an arrow on the histogram highs and another arrow on price highs and check if they move in different directions. For a Buy order, draw an arrow on histogram lows and another on price lows and check if they move in different directions.
Entry conditions for a short position (Sell):
1. The price should close above the upper Bollinger Band line.
2.The divergence happens if the price goes up and MACD goes down.
3. Set the entry point when MACD drops below zero.
Stop Loss
Set the Stop Loss order above the previous high and before the entry point.
Take Profit
Take your profit with a risk-reward ratio of 1:1.5.
Entry conditions for a long position (Buy):
1. The price should close below the lower Bollinger Band line.
2. The divergence happens if the price goes down and MACD goes up.
3. Set the entry point when MACD moves above zero.
Stop Loss
Set the Stop Loss order below the previous low and before the entry point.
Take Profit
Take your profit with a risk-reward ratio of 1:1.5.
