MACD Momentum Fractals Strategy

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MACD Momentum Fractals Strategy is a very practical and straightforward strategy for the intraday and higher timeframes traders. This technique is a synthesis between rebound and trend-following strategy.

Strategy

Strategy MACD Momentum Fractals embodies all the best values of three indicators. MACD and Momentum trend System serve to identify and predict trends. Fractals Indicator, in its turn, indicates turnaround points for entering the market.

MACD Momentum System

Both, BACM and Momentum are the cornerstone indicators for every trader. MACD shows localized trend directions, relevantly to the global tendencies. Momentum shows the rate of price change, in other words – the power of the trend. Rules for the MACD Momentum:

  • MACD higher than 0; Momentum Crosses the 100 level from bottom-up – Strong Uptrend
  • MACD lower than 0; Momentum Crosses the 100 level from above-down – Strong Downtrend

Fractals

Fractals Indicators seek for the certain price patterns on the chart and highlights them. Namely, it aims for the Head and Shoulders candle patterns.

fractals_3

Head and Shoulders candle pattern is the simplified version of the classic Head and Shoulders pattern. It appears when the Peak (or High) of the candle are higher than previous bar High and greater than High of the newer one. It cannot be spotted on the current bar, it only can be spotted as soon as the current bar forms its peak, and this Peak is lower than previous. Mirrored rules are applied for the Downside Fractals.

Fractal indicates a possible rebound or reversal movement. In MACD Momentum Fractals strategy Fractals Indicator helps to indicate entry points. Rules:

  • Formation of the Bullish Fractal on the downtrend (MACD are lower than 0) followed by the Strong Uptrend Signal of the MACD Momentum system – Buy Signal
  • Formation of the Bearish Fractal during uptrend (MACD are higher than 0) followed by the Strong Downtrend Signal of the MACD Momentum system – Sell Signal

Rules for the strategy

The strategy consists of following logical steps: first – determine current trend direction with the help of MACD Indicator; Second – Identify turnaround point of the trend; Third – wait for trend confirmation from the MACD Momentum System.

Fractals indicator are sensitive to the market noises, so we recommend not to use Timeframes lower than 30 min.

Setup

This strategy can be employed not only for the intraday trading but also serves well for trading on timeframes higher than H4. Nevertheless, the trader should always take into account the macroeconomic events for the long-term investments. Rules:

  • Any trading instrument is suitable
  • To avoid the impact of market noise we recommend to use time frames higher than 30 min;
  • Install MACD Indicator (we recommend following settings MACD (12, 26, 9));
  • Set the Momentum Indicator (we recommend following settings Momentum (14))
  • Install Fractals Indicator on the chart

macd momentum fractals strategy 0

MACD(12,26,9) and Momentum(14) detect trend. Fractals indicate turnaround points.

Entry rules

The strategy follows simple rules: MACD and Momentum show current trend direction; Fractals shows possible entry points; Trades are open in the trend direction.

Buy signal:

  • During downtrend (MACD lower than 0) occurs Bullish Fractal
    • Momentum Line crosses 100 level from bottom-up; MACD confirms this signal by its growth or crossing the 0 line from bottom-up

Sell signal:

  • During uptrend (MACD higher than 0) occurs Bearish Fractal
    • Momentum Line crosses 100 level from above-down; MACD confirms this signal by falling or crossing the 0 line from above-down

Exit rules

The strategy allows several exit rules. In addition to the stop loss and take profit Fractals indicators will be used for the Early exit.

Stop Loss

There are several rules to evaluate Stop Loss, which underlay different risk levels. Usually, Stop-Loss set to the support levels and pivot points. These rules are listed for the Buy signal, for the Sell signal rules should be vice versa.

  • Last same direction fractal (usually will have too low value, usable for higher timeframes)
  • Closest lower Pivot Point
  • Minimum of the last bar (Suitable for the high time frames, H4, D1, W1)
  • Minimum of the current day
  • Current Price – k* ATR (Average True Range show average price motion; k between 2 and 5)

Take Profit

Take Profit is the desired level of profit and must correlate with Stop Loss level. One of the most important indexes of the strategy is relation SL/TP. This relation is called risk/reward level of the strategy.  (rules are for the Buy signal):

  • Last opposite direction fractal (usually will have too low value, usable for higher timeframes)
  • Closest upper Pivot Point
  • Maximum of the last bar (Suitable for the high time frames, H4, D1, W1)
  • Current price + k*Standard Deviation (Standard Deviation indicator stands for an average price motion; k between 0.5 and 1)
  • Current price + k*ATR (ATR – average true range, calculated on a different principal than Standard Deviation; k between 0.5 and 2)

Early exit rules

In this strategy, Fractals Indicator shows turnaround points, so it is logical that one should consider exiting the trade when Fractal with opposite direction occurs. MACD and Momentum Indicators could serve as the less sensitive Early exit indicators.

Rules for closing the Buy trade:

  • Opposite Fractal occurs
  • Momentum crosses 100 level back, from above-down and MACD returns below 0

Examples

macd momentum fractals strategy1

30 min EURUSD chart; Stop-Loss set couple point below Daily Extremum; Fractals Early exit rules are used for the Take Profit;

Pros

Straightforward and profitable strategy; Suites almost all timeframes.

Cons

Strategy gives false signals during stagnating market periods.

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