ADX and MACD Strategy – Simple and Reliable Buy/Sell Signals
The ADX and MACD Strategy is a unique trend following trading strategy. There are no further indicators in use except the Average Direction Index and the MACD oscillators. This trading strategy has rather simple rules and thus makes it easy for traders at any level including complete beginners to start trading using this simple trading strategy.
The ADX and MACD trading strategy make use of the two mentioned indicators. For the ADX, the default setting used is 20 periods, while the MACD is set to 12, 26,9. The trading strategy can be used on H1 timeframe and up to the Daily time frame.
Once the indicators are added onto the chart, you have the following.
ADX and MACD Strategy Chart Setup
ADX MACD Trading Strategy Rules
- DI+ must be above DI-
- MACD Histogram must be above 0-line
- Buy on the close of the candlestick with stops set to the nearest lowest close before the signal occurred
- For take profit, set a 1:1 profit level (one times the risk) and once this target is reached, move the stops to break even (only when price closes below or at the 1:1 target) and trail the remainder of the trade or until the MACD turns below the 0-line. Alternatively, the second target can be set o 1:2 RR
- DI- must be above DI+
- MACD Histogram must be below 0-line
- Sell on the close of the candlestick with stops set to the nearest highest close before the signal occurred
- Set a 1:1 take profit set up, which is one times the risk and once the target is reached, move the remainder of the position to break even (only when price closes above or at the 1:1 target) and exit when the MACD moves above the 0-line or when prices reach the 1:2 RR
ADX and MACD Strategy – Trading Examples
Buy Set Up Example
ADX and MACD Strategy: Buy Set Up Example
- The ADX indicator first alerts us to a potential buy set up with DI+ crossing above DI-
- On the third candlestick after the first alert, the MACD oscillator rises above the 0-line. Long positions are taken at the close of this candle, marked by the Black line
- The stops are the to the nearest lowest close, marked by the Red line
- The target is set to one times the risk, at 0.97112, where prices reach the target level quickly
- The remainder of the position is now trading at break even
- However, in the above set up, the second position is exited at break even as prices trend lower
Sell Set up Example
ADX and MACD Strategy: Sell Set Up Example
- The ADX Indicator alerts us first to a potential short set up with the DI- rising above DI+
- A few candles later, MACD triggers a sell signal. A short position is taken at the close of this candle with stops set to the most recent highest close, marked by the red line
- After the initial 1:1 take profit level is reached and price closing below this target, the trade is moved to break even with the second target set to 1:2 which was reached a few candles later.
ADX and MACD Strategy in Conclusion
The uniqueness of this rather simple approach to trading is the fact that while the ADX is used to identify the trend strength the MACD oscillator helps in timing the entry of the trade. Thus, by combining the ADX and the MACD oscillator, once a trend is determined and when we know that the trend will be sustained, using the MACD, we either buy the dips in the uptrend or sell the rallies in the downtrend.
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