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As a rule, divergence is considered one of the most important and interesting signals on the Forex market. There are many trading strategies based on divergence signals. This trading system also uses the divergence of the MACD indicator to search for entries in the market. But there is one highlight: divergence signals are filtered by the search for the damped impulse found using the Linear Price Bar indicator. You can download this indicator, like the MACD indicator, in the Indicators section .
Now there are a lot of different variations of MACD - this system uses the standard MACD, which is also part of the MetaTrader 4 library.
Indicator settings
Applying both indicators to the chart of a trading asset on the H1 timeframe, open the MACD indicator parameters and set the following values for its parameters: Fast EMA Period = 10, Slow EMA Period = 22, Signal SMA Period = 8.
The Linear Price Bar indicator has no parameter settings and remains unchanged.
Conditions for opening long positions
Since this candle is noticeably distinguished from others by its size, and the MACD indicator shows the attenuation, it can be assumed that its length, together with the divergence present, is a damping impulse; therefore, a BUY deal is opened on the next candle after the candle with impulse.
Conditions for opening short positions
A short position opens when these conditions are met at the beginning of a new hour.
Stop Loss and Take Profit
According to the risk control rules in this strategy, the stop loss is set at the distance of the size of the impulse candle from the deal opening price. As soon as the price is in a profitable position for the deal, and the profit exceeds the potential loss, the stop loss is transferred to this place to fix the profit. If the price does not touch the stop loss, which is already in the positive zone and protects the profit, then the stop loss should move after the price in steps equal to the size of the impulse candle.
Conclusion
Despite two simple conditions for opening a position on this strategy, these conditions are not so often met by the market. On average, one asset can receive 2-3 trades per week. Nevertheless, observing these conditions in a compartment with good money management, you can achieve good trading results.
