4-Hour MACD FOREX Strategy: Pattern A

In the 16th issue of ForTrader.org we will consider the trading strategy "4-Hour MACD FOREX Strategy", which brings its author an average of 300 pips monthly, has been tested on historical data and has been working successfully on the author's account for more than two years. The strategy is based on the work on patterns MACD indicatoras well as on combinations of moving averages.

Used indicators

MACD:

FastEMA=5
LowEMA=13.

Moving Average: three exponential moving averages with periods 7, 21, 365 and simple moving average with period 98.

Trading strategy algorithm

So, to work on the strategy we will need: the MACD indicator and four sets of moving averages. We will use the 4-hour chart of the EURUSD currency pair for our study.

The author of the strategy offers for trading 6 different effective versions of patterns. In this issue we will test one of the patterns of possible trend reversal, pattern A, in the rest of the issues we will test other types of patterns.

Pattern A: MACD reversal pattern

For successful formation of the descending pattern A for sale, the value of the MACD histogram indicator must reach a level above 0.0045, then fall below 0.0045 and form a maximum.

For a successful formation of the rising pattern A to buy MACD histogram value should reach the level below -0.0045 then grow above -0.0045 and form a minimum.

Searching for a buy signal

1. The MACD histogram should take a value below -0.0045;

2. After forming a high below -0.0045, the histogram should rise above -0.0045 and form a low, after which you should buy;

3. Stop order is placed 10 points below the last local minimum;

4. The first target for 30% position is closed when the price value is above the 21-period exponential average;

5. The second target for half of the positions is closed when the price reaches the value between 89-period simple moving average and 365-period exponential average.

6. The third target for the remaining position volume is closed when the price reaches the price support level.

2001.03.07 a descending pattern A was formed. The position was entered at the price 0.9305, stop order was placed at 0.9383, take profit and Goal #3 - at the support level 0.9014, volume - 1 lot. Almost immediately the price fell below the 21-period exponential average, and thus the Goal #1 was reached, and 0.33 lots were closed at the price of 0.9014 with a plus of $108.08. A little later, the price reached the midpoint between the 89- and 359-sliding averages and 0.34 lots were closed at the second target with a plus of $267, then the third target was reached and the remaining 0.33 lots were closed at a plus of $942.

Searching for a sell signal

1. The MACD histogram should take a value above 0.0045;

2. After forming a high above 0.0045, the histogram should fall below 0.0045 and form a high, after which you should sell;

3. A stop order is placed 10 pips above the last local high;

4. The first target for 30% position is closed when the price value is below the 21-period exponential average;

5. The second target for half of the positions is closed when the price reaches the value between 89-period simple moving average and 365-period exponential average.

6. The third target for the remaining position volume is closed when the price reaches the price resistance level.

Strategy testing

Having implemented this strategy in MQL4 as an Expert Advisor, we have derived the following parameters to optimize the strategy:

- stoplossbars = 6 - the number of bars for which the maximum or minimum for setting a stop order is determined.

- takeprofitbars = 20 - the number of bars for which the resistance or support is located.

- otstup = 10 - the number of pips to set a stop order from the found maximum or minimum.

- lowema = 12 - MACD indicator period.

- fastema = 26 - MACD indicator period.

- maxur = 0.0045 - the upper level of the MACD indicator.

- minur = -0.0045 - the lower level of the MACD indicator.

Having tested the above rules from 2001 to 2008, with default parameters of indicators, we have obtained following results:

The results show that trading according to the standard parameters of the strategy is ineffective. Let's try to choose the most optimal parameters in the period from 2001.01.11 to 2008.01.11 and then check them in the future period up to the current moment.

Strategy optimization

Having tested different combinations of strategy parameters, we have obtained many profitable settings for the strategy, and have chosen the most profitable one best option in terms of profitability and maximum drawdowns:

Let's see what results the optimized strategy produces.

As we can see, the result was positive: for this period the profit amounted to $17400. The initial deposit was equal to $3000. Now let's check how these parameters work on the future period from 08.01.11 to the present.

The system earned $2900 on a future system, which is a good performance, the system has earned a whopping 100% in six months..

To summarize

The strategy, in our opinion, is effective for working on the FOREX market and with a high probability of with the right approach will bring profit to the traderWe would like to emphasize the good ratio of profit and low potential risk of this strategy. We have not optimized the parameters of moving averages, perhaps optimization of these parameters will also improve the result. ForTrader.org experts' verdict: the strategy is quite workable and can bring income. In the next issues we will consider other versions of MACD patterns.

Trading strategy update

After 6 years, ForTrader.org experts have re-examined this strategy. You can familiarize yourself with the results obtained here.