Day trading with MACD and ADX

Day Trading With MACD & ADX indicator Introduction 7 AUGUST 2019 / COURSE 1 - BUILDING TRADING STRATEGIES MACD Moving Average Convergence/Divergence Indicator and ADX Average Directional

Day Trading With MACD & ADX indicator

Introduction

7 AUGUST 2019 / COURSE 1 - BUILDING TRADING STRATEGIES

MACD (Moving Average Convergence/Divergence

Indicator) and ADX (Average Directional Index)are two

of the broadest used technical indicators I’m sure most of you have used them at some point Combine them together properly and you can create one of the sharpest trading systems out there Keep reading and learn the results below

MACD

MACD uses the difference between two exponential moving averages to determine the direction of the trend and its momentum Using this with the EMA of the MACD itself(the signal line), and we have a

dependable indicator You can read all about its use and construction from How to use MACD in Day

Trading?

ADX

The main aim of the ADX indicator is to measure the strength of the direction without any reference to

direction The trend is considered strong if the

indicator reaches above the 25 line On the contrary,

if the indicator is below the 25 line, then the trend is weak or the market is not trending The ADX signals over 30 demonstrate the strong trend to happen – it is definitely the best time to get into the trade

Traders sometimes prefer to make the use of all three lines of this indicator: ADX, +Di and–Di lines – they interpret the cross of these lines as the additional signal of a possible reversal And we will be using this exact feature of the ADX in our strategy

The MACD-ADX Combination

The MACD is going to detect the trend reversals, while the ADX is showing either the trend is strong or

fading Sounds like a nice combo? Then, what are the ideal settings for those two widely-used indicators in order to get the best results?

We tried the MACD and ADX in several combinations and learnt while backtesting them through different markets and parameters Let’s check how these two indicators work together

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Trade Setup

Timeframe: 15 mins and above

Indicator settings: MACD(default settings: 12, 26, 9), ADX(default: 14)

Stop Loss/Take Profit: Set the Stop Loss/Target

Price over/below the closest swing high/low

Buy Entry Rules

 MACD rises above zero

 To confirm the signal D+ line of the ADX indicator higher the D- line

 ADX line is above 20 and rising upwards

 On the candlestick where these three conditions are met, you make a Buy

Sell Entry Rules

 MACD is below the zero line

 To confirm the signal D- line of the ADX indicator higher than the D+ line

 ADX line is above 20 and rising upwards.

 On the candlestick where these three conditions are met, you open the Short trade

How Else You Can Adjust the Strategy

 There are several ways to read ADX indicator, that if the ADX crosses the 20 level – then the trend is getting stronger, if the ADX is over 30 – the trend has gained even more power

 Aggressive traders can get into the trade when the ADX is below the 20 line, so it gives the

possibility to catch the growing trend and not to miss the beginning of it The basic idea is that the more mature trend is the more possible is the reversal;

 Traders must observe that the cross of the 20 line

is not as important as the slopes of the indicator and its direction Hence, this is not a purely

system trade, but some observation and

discretion is warranted

 You must experiment and find your own way to read the indicators and adjust them according to your trading needs The best way to find out – to backtest any of these settings and pick the one that will work the best for you

 Take Profit and Stop Loss We mention in every trade to have a risk reward ratio of 1:2 at least The same holds here Money management is at the heart of trading and we will discuss this is future in greater detail

See you next time!