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MACD indicator. Part 2: strategy and recommendations

MACD indicator. Part 2: strategy and recommendations

  • VFX Blog
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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).