Complex trading system #3 (MACD Divergence)
Submitted by Edward Revy on April 19, 2007 – 16:55.
Currency: EUR/USD (preferred) or any other.
Time frame: 30 min.
Indicators: MACD (5, 26, 1) – draw 0 line,
Full Stochastic (14, 3, 3)
Trading rules: watch for divergence between the price on the chart and MACD or between price on the chart and Stochastic.
Once divergence spotted, wait for EMA 3 and SMA 13 to cross and enter the trade in the direction of EMA 3.
Set stop loss at 26 pips.
Take half of the profit at 20 pips; let the rest to run further with trailing stop in place.
Divergence on Stochastic can be found the same way as on MACD. The reason for using both MACD and Stochastic is that one of the indicators can show divergence while the other will not at given period of time.
gud stuff, not properly researched, work harder, all the same, thumbs up!!
i like divergence ; ) i think it`s most powerful phenomen on trading
I agree! Im not a day trader, I’m a position trader and my trading system is based 100% on MACD Bullish and Bearish Divergences,,thats it! When theres a MACD BEARISH DIVERGENCE i go short when the MACD crosses and put a protective stop on the last high! (Vice versa for going long)
Very low risk trade high potential trading.
Then if the divergence carries, if im short i just put a protective stop 5 ticks above the last high and walk it down like a flight of stairs. Some of my divergence trades last over a month! Then when i get stopped out i go look for other markets with a divergence. Also, when a divergence doesn’t go anywhere, most of the time you don’t get hurt!! Your loss is very small OR by then you at least have your stop brought to breakeven!
DIVERGENCE trading is only system i have found where i have a lot of confidence in taking the trade, i dont second guess it i just place the trade. For me Divergence trading is very low stress trading!
Please explain more about the definition of “divergence” and how it is represented on a chart. Thanks for all the great information Edward. As a newbie to forex, this is all great stuff.
Here is a great explanation of MACD divergence by Andy Skinner.
In the video MACD settings are (5, 34, 1) and on the chart there are 5 and 34 EMA.
And that’s the link to the introductory video (Lesson #1) about MACD.
Hope this answers your question.
I found this method extremely profitable, as long as stops are tighter and trail.
Thanks for posting this!
=D Worked for me so far.
I’ve experienced a very interesting case today.
Usually, EMA crosses SMA in the direction of the MACD Divergence (in the chart the bottom part). Is it not?
What happens if MACD divergence (bottom part) is downward and the price is upward (upper part) and EMA crosses SMA upward.
Should I go LONG or not?
I wonder if you can send me a screen shot to my email
I’ll be glad to review it and solve this case.