Forex Trading made simple…

From the Desk of Fountain FX – 19th October

19th October 2015

After 9 weeks of living out of a suit case I have finally returned to Cape Town and I can say it was not a moment too soon. While I visited many places that most people would dream of visiting or living in, I can honestly say South Africa is the best place for me and based on latest research it is one of the best places in the World for quality of life.

Knowing the news that most of us hear on a day to day basis, this will come as a big surprise as South Africa’s media is not renowned for marketing the best of SA. What you may not be aware of is that UK and USA have similar issues; only this news does not travel far and the lifestyle available in these “developed” countries is very much more limited than in SA. That said I travelled to the USD, GBP and EUR zones at the worst time in history for the value of the Rand. This meant that a one night stay in a hotel in Santa Barbara, California at $1000 was R14,000 and a beer at the Giants baseball game in San Francisco $17 or R240!

So the beauty of Forex trading is it enables you to earn in USD and spend it in Rands. How to experience the best of both worlds!

It was times like this that made me miss SA and realise the value that we have in this country. While I was away I did share regular trade setups with our trading group, but traveling and different time zones meant that running webinars was impractical. So here we are to pick up from where I left off and I thought I would share a great trade setup that happened this week on The EURUSD.

MACD Divergence

For those of you who have attended our webinars and foundation course, you should be familiar with the MACD indicator used to show trend direction and strength. Some schools of thought confuse this indicator and say it is an oscillator showing over-bought and over-sold conditions. I strictly use the MACD for strength of trend and keep it simple.

So what do I mean by MACD Divergence? Well MACD stands for Moving Average Convergence Divergence. When the MACD is convergent with price we are in a strong trend, either up or down, but when price is pushing up and the MACD is declining (or vice versa) we have a condition of divergence between price and the MACD indicator. It was this condition that confirmed a sell order on Thursday on the EURUSD.

Forex-chart-1

The above chart of the EURUSD 1hour shows clearly how price was pushing up into a previous level of resistance. While we should sell at resistance there is always the possibility that price breaks through and moves higher. So we have to look at all the other indications that we have and not just rely on one rule.

Using Multiple Timeframe Analysis we were able to look at the 4 hour and daily charts to confirm how significant resistance was. We were also able to look a lower timeframes such as the 15minute and 5minute to see if the MACD was confirming a decline in the trend.

So we have the following conditions that confirmed a SELL order.

  1. Resistance
  2. MACD Divergencev
  3. MACD Over Bought
  4. Multiple timeframes confirm sell
  5. Candlestick Patterns show sellers entering market.

So with a sell order at 1.1478 and a stop at 1.1500 let’s see what happened to the trade:

forex-chart-2

The Price did sell off and US news also added to the continuation of the sell off so that at the end of the day a 95pips profit was realised. To manage risk better and allow for you to stay with a trade longer, there are various trade entry and exit strategies that we follow and teach on our courses. By scaling out of this trade and managing the stop, your risk can be minimised and profit maximised.

I hope this helps you spot more trade setups using the MACD Divergence. For those of you who do want to gain more insight into trading and have the opportunity to be more confident with your trading, sign up to one of our courses. Let’s make trading simple.

Email steve@fountainfx.net for a special course fee.

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