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“MACD-OBOS” Trading Strategy (HIGH WIN RATE Forex & Stock Trading)


“MACD-OBOS” Overbought-oversold Trading Strategy.

Trading NOTES

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However, Can the MACD be utilized to identify overbought and oversold conditions?

If you’re looking for information on whether the MACD can be used to identify overbought and oversold conditions, many trading gurus would respond with a resounding “yes, MACD can be used for that purpose.” However, their explanations can be quite convoluted and forced, at least from what I’ve observed.

In my own experience using the MACD in the market, I’ve found that this indicator isn’t quite reliable enough when it comes to identifying overbought and oversold conditions. As a trader, you shouldn’t force an indicator to perform analyses it’s not designed for.

So far, the best indicator for identifying overbought and oversold conditions remains the Stochastic Oscillator. And you probably already know how to read the Stochastic Oscillator effectively for this purpose.

Next, we’ll delve into how to trade overbought and oversold conditions with high accuracy using both the MACD and Stochastic Oscillator.

MACD Overbought-Oversold Trading Strategy

In this strategy, we utilize the Stochastic Oscillator with a specific setting of 12, 6, 3.

The reason for using a period of 12 is to align it with the Fast EMA period in the MACD indicator. By doing this, both indicators calculate data based on the same period, ensuring that the overbought and oversold conditions indicated by the Stochastic Oscillator are calculated from the same data as the MACD.

In this strategy, we won’t measure overbought-oversold conditions or use crossovers as the system. Instead, we’ll take it a step further and look for momentum breakouts from the prevailing trend.

200-period EMA

In this “MACD overbought and oversold Trading Strategy,” we follow a similar approach as the one used in the “MACD Crossover trading strategy“. The key component here is the 200-period EMA (Exponential Moving Average).

So,

  • if the price continues to move above the 200-EMA, our focus in this strategy will be on seeking BUY signals while disregarding all SELL signals.
  • Conversely, if the price consistently moves below the 200-period EMA, we’ll be looking for SELL signals and ignoring all BUY signals.

These are fundamental rules that are crucial and must not be violated in both the “MACD Crossover trading strategy” and the “MACD overbought and oversold Trading Strategy.”
Stochastic Oscillator.

12-period EMA

The 12-period EMA plays a significant role in this strategy as we analyze the 12-period price data in the market. Just like MACD and Stochastic, which use a 12-period data set, we need the 12-period EMA to confirm that the signals are moving in the right direction and momentum.

Similar to general Moving Average rules, in this 12-period EMA,

  • if the price is below the line, the market is BEARISH in the short and medium term,
  • and if the price is above the 12-period EMA line, the market is BULLISH in the short and medium term.

So, the 12-period EMA line in this strategy serves as confirmation for the signals to open positions as indicated by the MACD. Next, we’ll dive into the combination of Stockhastic oscillator and MACD.

“MACD OBOS” Trading Strategy

Firstly, the 200-period EMA is the most commonly applied solution by traders to maximize signal accuracy. It involves utilizing the 200-period EMA to determine the prevailing main trend in the market.

As I have mentioned many times before, the 200-period EMA rule is widely adopted by bankers and other institutional traders.

  • When the price is above the 200-period Moving Average line, it indicates a BULLISH market,
  • whereas if the price is below the 200-period EMA, it indicates a BEARISH market.

Therefore, in this trading strategy, if the price is above the 200-period EMA, traders wait for a BUY signal indicated by the MACD crossover below the 0 line. Conversely, if the market is below the 200-period EMA, traders only wait for a SELL signal indicated by the MACD crossover above the 0 line.


The next crucial filter that plays a significant role in maximizing our trading profits is that BUY signals should occur after the market has been in an oversold condition, and SELL signals should occur after the market has been in an overbought condition. We determine these oversold and overbought conditions using the Stochastic Oscillator, as I explained earlier.

As a minor confirmation, we use the 12-period EMA. This means that if a BUY signal forms, the price should also be moving above the 12-period EMA line, or conversely, if a SELL signal forms, the price should be moving below the 12-period EMA line.

How to install “TraderVersity.Com-MACDoverboughtoversold System
  • Download “TraderVersity.Com-MACDoverboughtoversold” (Zip/RAR File).
  • Copy mq4 and ex4 files to your Metatrader Directory …/experts/indicators/
  • Copy the “TraderVersity.Com-MACDoverboughtoversold.tpl” file (template) to your Metatrader Directory …/templates /
  • Start or restart your Metatrader Client.
  • Select Chart and Timeframe where you want to test your forex system.
  • Right-click on your trading chart and hover on “Template”.
  • Move right to select “TraderVersity.Com-MACDoverboughtoversold” trading  system and strategy
  • You will see “TraderVersity.Com-MACDoverboughtoversold” is available on your Chart

 

BUY Rules

As seen on this chart, the primary market trend is BULLISH.

This is confirmed by the price consistently moving above the 200-period EMA. In a BULLISH trend like this, we’re only allowed to take BUY positions and ignore SELL signals.

The most profitable BUY signals with relatively low risk are those that come after an oversold period. So, the next step is to check the Stockhastic Oscillator to identify any oversold price movements.

As you can observe in this chart, the price experienced an oversold condition as the Stochastic Oscillator line was below the 25 level. Next, we turn to the MACD indicator to find a BUY signal from the MACD Crossover below the 0 level.

With all the trading rules met, we should promptly take a BUY position on the next candle. Since the price is above the 12-period EMA, the BUY position we take is valid.

The next step is to determine the stop loss just below the nearest swing low.

As proven, the BUY position we took resulted in significant profits compared to the stop loss risk we incurred.

 

SELL Rules

On this chart, it’s very clear to see that the prevailing market trend is BEARISH. This is further confirmed by the price consistently staying below the 200-period EMA.

In a BEARISH trend like this, we’re only permitted to initiate SELL positions and disregard BUY signals. The most profitable SELL signals with relatively low risk are those that come after an overbought period.

Hence, the next step involves looking at the Stochastic Oscillator to identify any price movements currently in an overbought condition.

As you can observe in this chart, the price is in an overbought condition as the Stochastic Oscillator line is above the 75 level. Then, we proceed to the MACD indicator to find a SELL signal from the MACD Crossover above the 0 level.

With all the trading rules met, we should promptly take a SELL position on the next candle. Since the price is below the 12-period EMA, the SELL position we take is valid.

The next step involves determining the stop loss just above the nearest swing high.

And as proven, the SELL position we took resulted in substantial profits compared to the stop loss risk we incurred.

Trading NOTES

By mastering all the facets of the MACD indicator, you’ll possess a solid skill set for market analysis and be capable of leveraging every situation to reap profits in both the Forex, stock, and crypto markets.

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