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Chapter 13, Part III. Lagging Indicators. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: Let’s take a look at how it works:

    Chart #1 | GBP/USD Weekly. MA and MACD

    As you can see, in August 2008 a sell signal has come simultaneously from MACD and MA crossover on the chart. It has finished with an excellent down thrust. In the beginning of 2009 MACD has given a buy signal a bit earlier than moving averages, but still both of them have turned in the same direction. A very interesting situation has happened at the end of 2009 – although MA has shown bullish crossover – MACD has held a down trend and negated this buy signal. And finally, in June 2010 MACD and MA has given signal to enter the market at long side.

    So, you can see that sometimes MACD gives signals a bit earlier, while MA still hold the previous trend. For example, as it has happened in January 2009. As you can see, after MACD has generated a signal the market has shown solid retracement down. Potentially such price action could turn to losses or you will be nervous at such price action. AS with other indicators we must use MACD or MA, but only as a tool in an overall trading plan. For instance, if your trading plan suggests that you must enter on retracement low, after confirmed a buy signal from MACD – then you have entered almost at the extreme low and caught anoutstanding move up then. I just want to say that we should not trade blindly based on any single indicator, despite how it could be attractive to you and the grade of your fascination with them.

    Personally, I like MACD as a trend indicator, but I do not use it in the simple way – “up cross – buy, low cross – sell”. I prefer to use it during thrusting moves, look for cross angle, look where this cross has happened, what kind of price action was before the MACD signal, does price action support the trend or not and so on…

    In other words – a trading plan is that you should follow. Indicators are just tools that help you to understand the overall picture and decide – do you wish to take the trade or is it better to wait for another chance…

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    Hamza Samiullah and fran alvarez like this.
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