I have mentioned MACD quite several times introducing how to use MACD; moreover, the MACD is the most frequently used Forex indicator on my chart. I think it a good way to use the MACD crossover to identify whether the Forex market is going to reverse or not. How does it work?
First of all, you need to know exactly what MACD crossover is. When the MACD line cuts through its trigger line southward, you are seeing a bearish crossover. When the MACD line cuts above its trigger line, you are getting a bullish crossover.
Here are how you can make use of the MACD crossover to trade reversal:
1) Look for Reversal Candlestick Pattern: The best way to trade a reversal is to be able to find reversal candlestick pattern on your chart. You should look out for patterns such as railway track, evening or morning star, hammer and hanging man etc.
2) Set up Oscillator Indicator: There are a few indicators that are used as an oscillator and they are Stochastic or Relative strength Indicator (RSI). If you are getting a bullish crossover, you will enter a trade if the oscillator is oversold. If you are seeing a bearish crossover, you should enter your trade if the oscillator is showing a sign of overbought. Using either the stochastic or RSI can help to increase your odds of winning.
Usually Forex traders would find themselves stopped out by fake outs provided by the Forex market. Then what should they do? I suggest that you should try the MACD crossover. It is an effective way to filter false signals and make right decisions.
Whenever you have a breakout or just simply a trend line break, you should always look at your MACD as a way to confirm the breakout. If there is a breach of trend line but there is no crossover on your MACD indicator, you are likely to be seeing a fake out. However if you have a breach of trend line together with a crossover in your indicator, you are likely to be experiencing a valid breakout.
Above is how you can trade the Forex indicator reversals, and I hope that it will do you great help in your future Forex trading.