This trade strategy was introduced by investopedia in their free ebook. This is presented in their free ebook "High probability Trading Setup". This is originally developed for inpatient people (like me) for trading the 5 minutes chart. I just loved the simplicity and the fact that it does works really well. Let’s get more into it below.
As the book written, this is for inpatient people to trade the 5 minutes chart. The setup couldn't get simpler. What we need on our chart is
- 5 minute chart on any currency (prefer high volatility pairs)
- 20 EMA on the chart
- MACD with default setting
These are the original context of the strategy
condition to go long
when the price cross the 20EMA from below to above
confirmation by MACD is above the zero line
Go long on 10 pips above EMA line
condition to go short
when the price cross the 20EMA from above to below
confirmation by MACD is below the zero line.
Go short on 10 pips below EMA line
exit
exit half of your position when target reach.
trail the stops for the remaining.
stop lost
place stop lost at 20 pips below EMA line
place stop lost at recent swing low / high
With proper money management and risk reward ratio, this is quite rewarding trade strategy even without any indicator. The MACD indicator was there to filter out the bad trade so we can avoid false breakout.
However I have made some twist to this system, and here is my version
- 5 minutes or longer time frame chart
- 21 EMA (slightly longer)
- MACD with default setting.
stop lost
stop lost placed at the most recent swing low / high
exit
same as original rule.
Trail the stops of remaining until MACD line starts coming down. Why am I using 21 EMA? Because it is slightly longer, so breakout occur a bit later (more confirmation). Plus 21 is a number in fibs sequence, and also the EMA recommended by fxKnight.
The wonderful thing about this system is that it not only works with 5 minutes chart, but i have tried it with 1 hour chart and it works wonders.
