MACD indicator. Part 2: strategy and recommendations
- VFX Blog
- For beginners
In the first part of the article, we showed basic rules of how to make money on binary options using the MACD indicator. In the second part, learn more about how to increase profits using other technical analysis tools.
MACD and oscillators
The calculation algorithm does not provide basic levels of overbought/oversold, so the trader must determine their criteria for analyzing price dynamics. Good results showed levels of 80 – 90, the breakdown of which indicates the beginning of local corrections and rollbacks. As statistics have shown, these binary options trading signals are often more reliable than from standard oscillators!
On a strong trend, to support the position, use the delay of oscillators, which usually after the breakdown of the extreme zones "stick" in them for the entire period of movement. You can also set pending orders for a potential breakout of intermediate levels, close after crossing the signal or zero lines.
Another option would be to use a combination of tools, such as MACD+RSI as shown:
The “MACD + Stochastic” combination also gives good results, especially in an unstable market and just before a reversal. More rare MACD signals filter the "restless" Stochastic.
Do not forget about complex analysis on several timeframes: on the weekly W1, we look at the long-term trend, on D1-H1 we start to follow the oscillators and specify the entry point on M30-M15.
Technical analysis figures on the MACD chart
In the medium - and long-term strategy for binary options, the accuracy of emerging figures reaches 90% with stable development according to the standard method. This property of the indicator because of its profitability is rarely mentioned in literature and professionals.
As an example, we can cite the famous trader Philip Neely who, trading on the figures on the H4 timeframe did not have a single losing month for three years. True, it was the stock market, but the results on Forex are no less impressive.
Signals are usually outstripping, large timeframes allow you to wait for confirmation from the average with minimal lag and enter at the beginning of a new trend
Standard scheme "MACD + trend lines + support / resistance»
Binary options guide suggested that it is on the indicator that the final decision on opening a transaction will be made. But this is in theory, but the price inside the trend moves at significant price levels, from which there can be either a continuation (breakdown) or a rollback (rebound) or even a complete reversal of the current movement. The main task of the MACD is to identify a false breakout and only then confirm the trend.
Let's look at the example: the price showed several unsuccessful retests of the support line (see the shadow of candles) and on the histogram a few rising red bars, which indicates a prolonged period of sales, a gradual increase in open interest in the purchase and the appearance of CALL-options.
The histogram also shows two lowering lows, therefore, we open at the close of the candle corresponding to the second bar after the last min.
Second example: a histogram signals a false breakdown, although testing the support line and closing the candle below it and at first glance can open the sale. But the MACD makes the binary options signal clear and cancels: a long period of histogram movement continues below the zero lines with consistently increasing minimums.
Elliott waves and MACD
Another advantage of the indicator, which is often forgotten by traders, although the classic technical analysis Bill Williams in the book “Trading Chaos” analyzed price waves of 140 candles using MACD (5.34.5). The idea was developed in indicators of wave patterns, where MACD is used as a predictive tool in areas that are not included in the standard wave model.
Williams additionally used his Awesome Oscillator (AO), but its basic settings are more suitable for the stock market, and Forex requires the selection of parameters separately for each asset and even a trading session.
Using the MACD or AO market fractal property, one can simultaneously control the formation of higher and lower order wave models, identify the wave type in time, and see a new medium and long-term trend.
Examples of using MACD in binary options
Let's move on to complex strategies and show several options with stable results on most currency pairs. You can download the MACD indicator and its modifications on the Internet free of charge.
MACD on the price chart
The signals resemble the Ichimoku indicator: the strongest ones are at the intersection of the histogram sections, then the breakdown of their borders. Hold the position while the price goes inside or under/above the shaded areas.
His free binary signal will be confirmed by changing the colour of the histogram: from blue to red for PUT-option, from red to blue for CALL-option. Possible short-term divergences are visible, the Visual MACD baseline is used as a dynamic main trend line behind which the expiration time.
MACD and slow trend MA
The easiest way to compensate for the lag is by using an exponential (EMA) average with a large period. Intraday trading on basic currency pairs is recommended, working timeframe - M30. The minimum values of the indicators are MACD (24, 52, 18) and EMA (100).
Binary options strategy exclusively on the trend: the price above the EMA is an upward movement; below it is a downward movement. Next, we work according to the standard method: hold the position while the MACD histogram is above/below the zero lines, close when it crosses in the opposite direction.
Two trend indicators - MACD + Parabolic
The first signal comes from Parabolic, then if after three candles it is not confirmed by the MACD, remain out of the market, otherwise, we open a position in its direction.
We analyze M15-M30, support transactions on H1, follow the opening rules for both indicators. It is not included in the signals contradict each other, in these cases, we look at possible divergences on the MACD.
In addition, we do not open during periods of wide-range flips, where Parabolic continues to change direction. It is better to wait for a new trend in the binary trading platform and not risk short-term transactions!
Combination of MACD
Various parameters of indicators are designed to compensate for the delay as much as possible: by analogy with the usual moving averages, we get "fast" and "slow" options that filter each other's signals. This allows you to correctly assess the volatility and data of overbought/oversold oscillators.
The timeframe for finding entry points and tracking a position is from H1 and higher. The most stable results are shown by Asian pairs (USD/JPY, AUD/USD, NZD / USD).
Add volatility indicator
A modified version of MACD for trading market reversals (in the case of Forex, an increase/decrease in tick volumes), the flat is additionally well filtered.
It can be used on any trading assets, except for periods of opening/closing/crossing of trading sessions, the release of strong fundamental news, speculative actions at the beginning and end of the week - then trend signals become false and it is better to look at the market by individual volume indicators.
Signals occur when crossing the zero level. The colour of the bars determines the degree of activity of the players, as always the reversal of the histogram indicates that the volatility has decreased and it is necessary to close the current position.
- The main advantage of the MACD is reliable trend detection, which ensures the trader from opening positions against the current trend. But, here you should always remember the basic rule of technical analysis – the older the timeframe, the more reliable the signal. Especially if you use Moving Averages or their difference as in the case of a signal line.
- Therefore, we start the analysis with H4 and only then confirm the movement on H1 and M30 - otherwise, you can initially switch to a false signal. This is the main disadvantage of MACD, because 70-80% of the time when the market moves in the lateral ranges of different widths, most free binary options signal become false, so it’s better to focus on other tools during these periods.
- The MACD indicator is especially recommended for beginners who do not yet have the necessary patience to wait for all the conditions for the entry point to be met. Yes, there is a delay, but it is precisely this fact that allows us not to be distracted by the “noise” and correctly assess the situation.
- Since there is a combination of the properties of trend and oscillator group tools, the indicator can be the basis of a reliable strategy, but it cannot be used without additional filtering and confirmation. We need, at least, market volumes and assets, which are characterized by regular sustainable trends. Divergences, in any case, will be the strongest signals!
- The MACD indicator and its modifications will remain one of the most reliable tools for stable binary options profits, despite the dominance of algorithmic high-frequency trading (HFT), which is trying to replace the classic methods. The trader can choose the signals that best fit his strategy, and most importantly, see a really realistic picture of the price movement without redrawing.