Forex Trading - refining MACD Trading Strategies

Can not be displayed all the right signals all the time and the associated refinement of strategies to use an indicator is a must to avoid as many false signals as possible. Get some signals, that is good is always better than a bunch of signals of poor quality.

Moving Average Convergence Divergence MACD is frequently used in technical analysis for trading. MACD is a lagging indicator and that means that all signals generated by the crossover of the MACD and signal line with a delay in time. Which generates signals after the confirmation of the transition in a given direction will remain open. If the trend is weaker, it would remain tend to generate more false signals

Why more false signals during weak trend or if the market is everything, or run sideways

A signal) To: At the time the item is produced, the price reached the turning point, because during the time delay trend weakens and the market is going to recycle
2) Exit Signals: occurs by the time reversal crossover and the signals that we should close our capacity to take profits, again the price is already so much that the realized gains levels much lower than the expansion stages of the trading in the past would be closed

Although the most important factor in trade is knowledge, skills and trading discipline, but there are always ways to improve our indicators as well. The improvement can be either the change in the logic by adding new conditions or by experimenting with different ideal. What we want to achieve is always smaller and smaller proportion of false signals have. Albin, Gunter and Cain brought some improvements in the original MACD, the proportion of false signals, reduce the otherwise potentially generated. The first is called refined version of R1 and R2 MACD MACD seconds later

Let's see what the MACD and MACD-R1-R2. Our trading platform is not likely that more sophisticated versions given, but the logic of this, we can think to improve our MACD trading strategies

MACD-R1

a) a further conditioning was added, and it was, for three periods, waiting for days on the daily chart), when the MACD signal line, the line up or down, before we take a stand. This expectation was to ensure that the signal was wrong, and an immediate return would not be as soon as we get to position. If during the 3 periods, another crossover occurs when we forget the first crossover and wait for another 3 periods to see this reversal

b) To avoid problems at the exit point number two above-mentioned compounds, the MACD-R1 results with the levels before the agreed percentage. In a nutshell, and it is not to be greedy and made a deal with certain predetermined percentage of the profits. These proposed profit-taking rate of 3% and 5%. Sun MACD R1, says that close to 3% and 5% profit, that trade. If a reverse crossover takes place before the set target of 3% and 5%, then we should also close the trade

MACD-R1 - weaknesses

1) Even with these additional conditions, there is a higher number of false signals

2) Loss of earnings: Suppose that there is a strong upward trend, and get after taking a long position prices by 8%. And what we did, we had at the end mode at 3% and 5% profit, and thus lost the opportunity to make higher profits. Basically, we end up a huge loss in profit, to the mantra that run your profits and cut your losses is broker

MACD-R2

To the above-mentioned problem of even higher number of false signals which overcome by MACD R1 is an additional condition was added in the form of further refinement. The new improved version, called the MACD-R2

Consider, the MACD-R1 still ways to reduce the noise

Scenario: We are here for three periods of waiting for the confirmation of the trend to continue through to ensure that no pretext crossover occurs in this period. And after these three months, when we entered the market. Once we come to the market, take a turn there and we end up with losses.

Now let us see why the above scenario is possible and what we have missed, to avoid it

It may be that we wait for our confirmation, but ignored another warning, what did not happen too soon now

This can happen because of, but by the end of the three periods after the original crossover, not a reversal crossover is not possible without the MACD line occur is close to dangerously close to the signal line, indicating a trend reversal. The difference between the MACD and signal line is reduced drastically. We are not tracking these developments and ignore the reduction of the difference between the MACD line signal line even if it shows the possibility of turning crossover

What additional changes / conditions exist in the MACD-R2

Now that we know what we missed, we must add that the state so that we do not lose track of the difference is a reversal decreases

A further condition was, apart from the initial concepts of the MACD R1 to R2 Design MACD. This condition is to ensure that we monitor the difference between the MACD line and signal line and to ignore a warning about a possible turnaround. This condition ensures that a given difference between the MACD and the MACD signal line even after a waiting period of 3 periods and then we will just go straight into the market. If the difference between the MACD line and signal line less than the agreed level is we do not get us to the market

Suppose we decide that the smallest difference between the MACD and signal line should be at least 1.2% by the end of three periods. What that means is, if the difference is between these two lines less than 1.2%, should not trade positions. We determine this percentage difference in the experience of a difference of less than this base may to a possible reversal