The double MACD strategy is a simple yet effective way to trade forex. Many traders already utilise the MACD indicator in their trading strategies, but not many use a combination of two MACD’s to get double confirmation on buy or sell signals. When used correctly and in unison with other forms of chart analysis, the double MACD strategy can help to give your trading an edge.
What is the MACD?
The moving average convergence divergence indicator (MACD) is a popular technical indicator that can be used to spot trend direction and momentum. It consists of 3 components which are:
- MACD: The 12-period exponential moving average (EMA) minus the 26-period EMA
- MACD Signal Line: A 9-period EMA of the MACD
- MACD Histogram: The MACD minus the MACD Signal Line
How to trade with the MACD?
There are a few ways to interpret the MACD oscillator. I like to use it to spot when the current trend might be starting to slow down and coming to an end. This can be a good time to exit any open position on that currency pair. I also use it to identify possible entry points into new trends. When you time entry well, you can catch some big moves with the MACD.
- MACD Crossover (main and signal line)
- MACD Crossover (zero line)
- MACD Divergence
However, I think it is essential to use it in combination with other technical indicators such as the ADX and Bollinger bands to help filter out false signals. I also like to check price action and look for any candlestick patterns around the point of entry for further confirmation. Yes, you could trade the double MACD strategy blindly, but this may lead to taking more bad entries then necessary.
What is the double MACD strategy?
If using one indicator is good for finding buy and sell signals, then using two can help to improve a forex strategy even more. Granted, it may mean that you miss out on some winning positions, but avoiding more losing trades can help to make up for it in the long run.
The double MACD strategy involves placing two MACD indicators onto your charts and looking for them both to agree with a trading signal. This could be the MACD crossover strategy, MACD divergence strategy, or a combination of both MACD strategies for even more reliability.
You need to use 2 MACD’s with different settings, otherwise the signals are going to be exactly the same on both. You can use shorter term MACD settings if you are looking for aggressive entries which may lead to lower quality signals.
Alternatively, you could use longer term MACD settings if you want to be more conservative. Signals will be less frequent but could be more reliable as more price data is taken into consideration.
Buy signal
- Both MACD main lines cross the signal lines in an upwards direction
- MACD is showing some divergence to the upside
- Entry is confirmed with price action and other indicators (optional)
- Stop loss can be placed just below recent support level (optional)
- Exit on opposite MACD crossover (optional)
You can see in the EUR/USD 4-hour chart below that both MACD indicators (short and long term) are showing the main line cross above the signal line suggesting upwards momentum. The ADX crossover shows the +DI above the -DI and the trend strength moving above 20. You then have an inside bar which is further confirmation that this is a strong bullish signal. We could have had a 50 pip stop loss around recent support which is very reasonable when you consider this trade reached over 300 pips. Exit could have been on the shorter term MACD crossover in the opposite direction as this is lagging less than the longer term MACD crossover.
Sell signal
- Both MACD main lines cross the signal lines in a downwards direction
- MACD is showing some divergence to the downside
- Entry is confirmed with price action and other indicators (optional)
- Stop loss can be placed just above recent resistance level (optional)
- Exit on opposite MACD crossover (optional)
In the EUR/USD 4-hour chart below, you can see that both of the MACD indicators (short and long term) main lines have crossed over the signal lines. The ADX indicator is also signalling a strong downtrend that is gathering momentum. Price has also bounced off a recent resistance level which would be a place we could put the stop loss. Entry is confirmed with strong bearish price action, including a three black crows candlestick pattern. This trade would have gone on to make around 250 pips if we exited around the longer term MACD crossover in the opposite direction. That is the issue with exiting using the shorter term MACD, in that you can get taken out of a position early. To help mitigate that, we could have moved the stop loss to break even point or above the most recent swing high level to protect the trade without exiting too early.
Double MACD strategy Pros & Cons
Pros
- Extra confirmation of trades
- Easy to interpret buy and sell signals
- Can spot start and end of trends early
- Any currency pair and chart timeframe
Cons
- Works better with other indicators
- Will still be false signals
- Requires good money management
Conclusion: is the double MACD strategy any good?
Yes, I think the double MACD strategy can give plenty of good signals, especially when used alongside other forms of technical and fundamental analysis. I personally would not take MACD signals without first confirming them. They can just be another important part of a more complete forex trading strategy.
It is also worth considering that success trading with the double MACD strategy is going to depend greatly on forex money management. Two forex traders could have a completely different set of results depending on the stop loss or take profit that they are using. I would try to cut losing trades short whilst letting winning trades run. This will help ensure one bad trade does not wipe out a run of winners.
If you want to give this MACD strategy a try, you could always do so with a demo account to begin with and see how things go. This is a good way to practice your trading skills whilst building some confidence. You can get a free demo account from most forex brokers. Once you start seeing some success in the long run, you could always make the seamless switch over to a live account.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
