Therefore, if you traded every MACD divergence, just like if you traded every moving average crossover, you would certainly lose money. However, when planned in advance and confirmed with other technical indicators, success is much more likely. This is because several things are happening at once and each is attracting the same bulls or bears into the trade you are planning. MACD Divergence MACD crossovers and dramatic rises are easy to spot.

However, spotting MACD divergence takes a little practice. Figure 1. What does this divergence mean? Just that the current price trend is running out of steam. It may not happen right away, but MACD divergence can be a powerful hint that the market is changing. What you are looking for is when price action and MACD do not agree.

For example, if price is making a series of higher highs and MACD is making a series of lower highs, something between the two is out of sync.

I see MACD divergence as a sign that fewer and fewer traders are in the trend. No one is trading against the trend-yet, but fewer and fewer traders are in the trend. When the only traders in a trade are nervous, they are likely to exit their trade at the first sign of trouble. So if MACD is diverging from a bullish trend, as soon as the bears muster up enough guts to short, the bulls will exit and the bears will take control.

This is exactly why MACD divergence can be so powerful. When it works, it often works well, but it takes time to set up. There are two powerful keys in locating possible times where divergence is likely to represent a reversal in price. Support and Resistance: MACD divergence can be powerful when price is at double tops or double bottoms. See Figure 1.

You may often see the MACD lines extremely overbought or oversold. This is not a reason to trade. In fact, it indicates signs of strength. This is often a better signal. Combining an exhaustion MACD pullback with MACD divergence at a double top, you would have a second cross of the MACD and an opportunity to trade.

Those two situations, along with your other tools can provide excellent trading opportunities. It is also important to note that divergence can be found not only on the MACD line and signal line as was demonstrated in the previous examples, but it can also be found on the histogram, as shown in Figure 1.

BOLLINGER BANDS As forex traders, we rely on market volatility as a means to profit. When the market produces a consistent, repeatable move up or down, we want to earn pips from that change in price level. Volatility is the relative rate at which the price of a currency pair moves up and down.

If price moves up and down rapidly over short time periods, the market has high volatility. If the price changes very little, the market is exhibiting low volatility.

By some estimates, the market is actually range bound about 70 to 80 percent of the time. In this scenario, the bulls and bears are in a battle that neither side is really winning or losing. Price action is back and forth, back and forth-much like a tennis match.

While in a range, the market establishes a fairly consistent level of volatility. Eventually, volatility kicks in and the market deviates from its range-bound state. Price is deviating from the current norm-trending beyond its recent established range. Volatility Indicator The Bollinger Bands BB indicator was first introduced in the s by John Bollinger, a longtime technician of the market. The bands are drawn at equal distances above and below a simple moving average.

Think of Bollinger Bands as an envelope indicator, projecting top and bottom lines around price. The bands act like mini support and resistance levels. The longer the time frame you are in, the stronger these bands are. These bands are self-adjusting. When the market becomes more volatile, the Bollinger Bands expand or open up and move in opposite directions from each other.

Whenever price enters a tight trading pattern, the bands respond by contracting or moving closer together. In a range-bound market, the bands are usually parallel to each another. When an earthquake strikes, the ground shakes, and wide curves of varying size are drawn on the chart reminiscent of the widening Bollinger Bands one sees during a fast-trending market. How to Use Bollinger Bands There are three different ways you can set up trades with Bollinger Bands: 1.

Range Trading: When these envelope lines, or bands, are parallel to each other, they can be used to predict levels at which to enter or exit a trade.

The Bollinger Bands have identified a range within which you can consider trading. As a general rule, when price reaches the upper band, the market is considered to be overbought. When price touches the lower band it is considered to be oversold. However, a touch of the upper Bollinger Band is not in and of itself a sell signal, and a touch of the lower Bollinger Band is not in and of itself a buy signal.

In other words, do not predict a support or resistance level based solely on a Bollinger Band. Instead, wait for price to bounce first, and seek confirmation from other indicators before entering a trade. After entering a trade following a reversal, your can place your stop on the other side of the Bollinger Band.

Breakout Trading: When prices break above or below the upper or lower band, it is an indication that a breakout and trend is about to develop. Excerpted from The FX Bootcamp Guide to Strategic and Tactical Forex Tradingby Wayne McDonell Copyright © by Wayne McDonell.

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ISBN: Chapter One Lagging Indicators Most technical indicators are lagging, which means they are slow. Continues… Excerpted from The FX Bootcamp Guide to Strategic and Tactical Forex Tradingby Wayne McDonell Copyright © by Wayne McDonell. The Fx Bootcamp Guide To Strategic And Tactical Forex Trading PDF Download Book Title is one of the best books out there on The Fx Bootcamp Guide To Strategic And Tactical Forex Trading.

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children ;o. Save my name, email, and website in this browser for the next time I comment. FX Bootcamp's Guide to Strategic and Tactical Forex Trading skillfully explains how to combine popular technical indicators to formulate a comprehensive market strategy. Whenever price enters a tight trading pattern, the bands respond by contracting or moving closer together. However, spotting MACD divergence takes a little practice. And with FX Bootcamp's Guide to Strategic and Tactical Forex Trading he shows readers how They tell you what just happened … after the fact.

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