What is MACD?
MACD stands for the Moving Convergence and Divergence.
It is a trading oscillator used to highlight both the direction and the strength of a market trend.
MACD is composed of a zero line, a fast-moving average, a slow-moving average, and a histogram.
When the market trend is upwards, the MACD moving averages and the histogram shift from below to above the zero line.
The fast-moving average may also cross over from below to above the slow one.
On the flip side, when the market trend is downwards, the MACD moving averages and the histogram shift from above to below the zero line.
The fast-moving average may also cross over from above to below the slow one.
What is the Inside Bar?
The Inside Bar is a candlestick whose whole dimension is engulfed by the candlestick immediately before it.
It is a one candlestick pattern, whose breakout leads to profitable price movements.
To know more about the Inside Bar, read the post ‘How to Make Money Trading the Inside Bar Strategy’.
MACD with the Inside Bar.
Now that you know what MACD and the inside bar are, it is needless to mention that you know the basics of the strategy we are about to discuss.
We are about to learn how to trade MACD with the Inside Bar in Olymp Trade.
MACD with the inside bar is a continuation trading strategy that blends the MACD and the inside bar to pinpoint high probability trade setups.
Forget about how the inside bar is traded as depicted in the post ‘How to Make Money Trading the Inside Bar Strategy’.
Here is a different strategy that blends the MACD and the inside bar to come up with high probability and low-risk trade entries.
Wondering how to trade the MACD with the inside bar in your Olymp Trade account?
Do not fret.
In this post, I will take you through the ropes of the ‘MACD with the inside bar strategy’.
Trading MACD with the Inside Bar in Olymp Trade.
From the basics to making money trading the MACD-inside bar blend. It is time to learn the dynamics and apply the knowledge we already have of trading the MACD with the inside bar in our Olymp Trade accounts.
Here are the simple steps on how to trade MACD with the Inside Bar in Olymp Trade:
Establish the Market Trend.
Price Action is king in establishing the market trend.
It is therefore the first thing to observe in determining the market trend.
COme to think of it, Price Action can actually show you both dimensions of the trend – direction and strength.
A market that forms higher highs and higher lows with a strong upward momentum is a strong upward trend.
On the other hand, a market that forms lower highs and lower lows with a strong downward momentum is a strong downtrend.
The reason I didn’t talk about a sideways market trend is obvious.
You need a market trending either upwards or downwards with enough momentum to pick these signals.
Ranging markets may not work well with this strategy.
You do not need any indicator to see this.
Actually, if the indicators you use will say anything opposite to what price action says, then such indicators may be wrong.
We will go with price action in this step, and check against the MACD in the next step.
Check the MACD Reading.
Have you used price action to initially determine the trend direction and apparent strength?
Then it is time to confirm whether indicators obey the king or not.
If they do obey, you can then proceed to look for an inside bar as an entry trigger.
However, if they don’t, you won’t be best suited to proceed.
Did you establish a strong uptrend in the first step?
Then MACD moving averages and histogram must have just recently, shifted from below to above the zero line.
If not, you cannot proceed to look for the inside bar to enter the market.
On the contrary, did you establish a strong downtrend in the first step?
Did the MACD moving averages and histogram shift from above to below the zero line?
If they did not, you cannot proceed to find an entry trigger.
If the MACD signal concurs with the established market trend as specified above, you can then proceed to the next step.
Look for an Inside Bar.
You know what inside bars are from the introduction, right?
An inside bar is a candlestick which is wholly engulfed by the candlestick immediately before it.
Here, you are not just looking for any inside bar but for particular inside bars.
Preferably, look for the inside bars which presumably reverses the bar before it.
Look for inside bars that close in the direction of the trend established by price action and confirmed by MACD.
Are you on a strong uptrend with MACD above the zero line?
Then look for a bullish inside bar.
If you are on a strong downtrend with MACD below the zero line, however, look for a bearish inside bar.
If your inside bar meets the criteria as specified above, you can proceed to set up your trade.
Set Up Buy Stop or Sell Stop Pending Order.
The particular inside bar for each trend type is the market entry trigger.
Once spotted, you must then enter trades as follows:
- Bullish inside bar on an uptrend: Set up a buy stop pending order 1 tick or pip above the high of the inside bar.
- Bearish inside bar on a downtrend: Set up a sell stop pending order 1 tick or pip below the low of the inside bar.
Adjust Stop Loss and Take Profit.
The Stop Loss for the buy stop pending order should be just below the low of the bullish inside bar.
On the other hand, the Stop Loss for the sell stop pending order should be just above the high of the bearish inside bar.
Using your Take Profit, target returns at least twice what you risked with your Stop Loss.
More ambitious traders can trail their stop to lock in profits as the position grows because it is in the direction of the market trend.
I know you thought that trading MACD with the inside bar would be complex and hectic.
See how easy and simple it has proven to be.
This might be the one strategy that your Olymp Trade trading account has been waiting for.
If you don’t mind growing your trading account in Olymp Trade using simple strategies, then this is one of them.