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Author:

Jemook [ Thu Feb 28, 2013 6:50 am ]

Post subject:

Jem's Daily MACD Reversal Strategy

BEFORE YOU READ:
Here is an updated MYFXBOOK taken almost 2 months after I put this on the forum.

2013-05-01_1635.png

I'm going to keep trading this for fun but it hasn't been proving itself, that's for sure. If you're still interested in reading up on it please continue!

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Hello fellow forum members!

Time for a new system from me. Let's try make some monkey in the easiest way possible whilst spending the least time possible in front of the charts.

The Concept

I took everything I learned in forex and threw it out the window. There was just too many concepts swimming around in my brain from the last 4 years and I needed to purge everything and start with a fresh slate. Plus I don't have time to stare at charts - so this needed to be a 'look at the charts once a day strategy'. So, where to start? I asked myself the following question:

What are the 2 most important things to get right in trading?

1. Trend direction
2. Money management

We're going to choose the direction for the day and then use good money management to trade in that direction with a tight stop loss (SL) and aim for a huge take profit (TP).

The Rules

1. Trend Direction

The D1 MACD (9,26,9 settings) shows us when a currency pair's trend changes. In the template I've included a MACD indicator which lets you watch the D1 MACD do it's thing while you are still on the H4 chart. The reason for this is that it's easier to see what happened in the past on the H4 chart as the D1 MACD becomes stretched and steps up or down. You can also try H1 charts.

The entry rules are very simple. Find out when a new daily candle forms with your broker. Make sure you set your trades as soon as the new daily candle appears on your platform - for me with Global Prime that is at 11am Sydney, Australia time.

If yesterdays MACD closed RED, you Short.
If yesterdays MACD closed Green, you Long.

Check out this picture:

D1gbpaudnopips.png

This is a H4 chart. Each of the vertical lines are an entry. On the bottom is the D1 MACD stretched over the H4 TF and each step on the MACD is a new day.

See the first vertical red line? That's when the MACD of the day before closed from green to red - that's a Short. See the second vertical green line? The MACD of the day before closed from red to green - that's a Long. So on and so forth.

IMPORTANT NOTE: If you are already in a trade and the MACD of the day before closed with the opposite colour you stop and reverse.

Ok, great! Now we have the direction changes figured out let's look at money management.

2. Money Management

When you enter a new direction change it can chop around or even be completely incorrect. We must protect ourselves from this by adding an automatic 30 pip stop to each entry. If we get the direction wrong the most we can lose is 30 pips on each pair. However if you manage to not get stopped and a pair moves in your favour this is what happens:

D1Profits.png

30 pips stop doesn't look so bad anymore when you can be catching 300, 400, and even 600 pips in a move. Risking 30 pips to make 600 = 1:20 risk:reward.

Now don't get me wrong you are going to be losing a hell of a lot with this strategy. On my test demo so far around 80% of my trades are loosers. But because of good money management the account is still up! The reason for this is the winners outweigh the loosers.

Currently I am only closing a profitable position when the MACD closes in opposite colour. That's how I've banked the pips above. However, I have a feeling that an equity % close is the better option. So from here forward I have a new rule to close all open positions when the open equity reaches 20% of the account. I will still close and reverse any trade when the MACD closes in opposite colour.

I'm using MPTM to auto-manage my trades once I enter them. It automatically sets a stop at 30 pips and monitors the open equity to close everything if open equity reaches 20% of account.

So with the rules you've just learned here is what GBPAUD looks like recently:

D1gbpaud.png

First trade was +400, next 5 trades was -150 and then we scored another +358 pips. The total for beginning of this year on GBPAUD is +600 pips. Good times, classic hits.

IMPORTANT NOTE: Do not trade this strategy on a single pair! You must watch all pairs and trade all of them when the opportunity arises!

Some pairs will not work as well as others. I don't know when one pair is going to be rangebound or when one pair will trend beautifully - so I trade all of them.

Setting up your Empty4

Here's an example of my screen showing all pairs open:

D1allpairs.png

I watch on the H1 charts as I have a huge screen and it just works better for some reason. It's very easy for me to see when a pair has changed direction on the MACD as the steps are very steppy.

1. Download my package. Unzip it. Install Template, Indicator and MPTM EA to your Empty4 installation

2. Open up Empty4 and open all pairs on the screen. Set TF to H1 or H4. Apply the included template to each pair. Click window->tile veritcally to tile them up nicely.

3. Open up a blank chart and install the MPTM EA ensuring allow live trading is checked. Load the included .set file and click Okay. You should have a smiley face in the top right corner. Open a random trade and see if MPTM added an auto 30 pip stop to your trade. If so, great. If not oh, oh.

4. You are now ready to trade.

Cheat Sheet / Step by Step Instructions

1. Wait for a new daily candle to form. Look at every single pair and note which ones the MACD changed colour for on the day before. If it changed from red to green put a long in. If it changed from green to red put a short in.

2. If you get stopped out wait for another setup. If yesterday's MACD changed colour on any pair then close that position and reverse on that pair.

3. Keep doing this until hopefully your equity grows to 20% of your balance and all positions are auto shut or your account blows up.

Further notes

[*] The lot size you choose depends on your strategy. On the $50,000 test demo I use .5 lots per trade at 1:50 leverage. Work out what you want to use for yours.

[*] 30 pip stop and 20% equity is what I'm playing with at the moment. You are more than welcome to choose whichever money management settings and let me know what you think works.

[*] Please note that this is a daily strategy so it's going to take a couple of months of results to see if what you're doing works or not - unless you want to backtest away.

[*] You could also work out a way to pull this on a shorter TF if you want. You'd use the H4 or M15 MACD then. I only have time to look at charts once a day these days so I'm sticking to D1.[/list]

Here's a MYFXBOOK link:

http://www.myfxbook.com/members/Jemook/ ... top/446435

D1myfxbook.png

OK! Go have fun. I've only been doing this for a while so no promises that this works in the long term. If anything this is just a simple excercise in money management that I wanted to share.

Jemook

Author:	glabbeek [ Thu Feb 28, 2013 12:42 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Very good post Jemook! I was loosing interest in this forum, just because most people are over-focussing on entries. Systems are made up that are so complex that you need a degree to understand the essence. There is no perfect system to enter the market, but you can improve the odds. By using a good exit strategy and sensible money management, you can beat the market in the long run. I'll be looking into this!

Author:	garyfritz [ Thu Feb 28, 2013 3:12 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Lovely post, Jem! Very clear and well-described. Nice work. I'm less sure about the viability of the strategy, unfortunately. I've looked at variants of this without much success. I'll try implementing it in Tradestation and see what that backtest says.

Author:	smeden [ Thu Feb 28, 2013 8:14 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Hi Nice strategy. I made an EA based on your rules. It only trade once each day. Í did back test it on EURUSD 26.8.2005 untill now. It made a nice profit. EA Instructions So daily/4H combo add it to daily. 4H/1H combo at it to 4H and change the EA settings to 240. 1H/15 combo change the settings to 60. Hope you get the idea. Remember to change all the 1440 when you change time frame.

Author:	bshoe24 [ Thu Feb 28, 2013 8:47 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
smeden wrote:Hi Nice strategy. I made an EA based on your rules. It only trade once each day. Í did back test it on EURUSD 26.8.2005 untill now. It made a nice profit. Thank you Jem and Smeden.

Author:	smeden [ Thu Feb 28, 2013 10:03 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Np bshoe24 Damm it stop out alot and still being able to make a prodit. Also look good on 4H. Just change the time frame in the settings

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Author:	Jemook [ Fri Mar 01, 2013 12:47 am ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Gary - the problem with throwing out the bad ones is that they'll probably perform well once I throw them out as the markets are always changing. For instance GBPJPY has 14 losses and 2 wins - but it made me the most pips. My point is I can never decide so I just trade them all and hope for the best. Here's what my screen looks like today after setting my trades: D12013-03-01_1102.png Todays new long trades: USDCHF, USDCAD, AUDCAD, AUDCHF Todays new short trades: EURAUD, EURUSD, EURCAD

Author:	rosst [ Fri Mar 01, 2013 2:11 am ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Hi Jem - My chart doesn't look the same as yours - I think I may be missing some indicators. Also on my eurusd chart macd is red all the way... Thanks for sharing your new toy...

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