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the interpretation and application of price action concepts

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MACD Conservative Setups  thanks to Mike Bruns


MACD Aggressive Setup     Range Expansion REI Setup    REI Stochastic Setup    REI Note     9/30 Setup 


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MACD Conservative Setups  

Location: With the Trend     

 
  • The MACD is a momentum indicator composed of two moving averages, a Fast Line (FL), a Slow Line (SL). A Base Line (BL) is the third component of the standard MACD.

  •  The values used are: 3, 10, 16 all simple based on close

  •  We are comparing the relationships of all three lines to each other to establish the set up in a "zone of opportunity."  Once in the zone, the price bars decide the point of entry.

  •  The chart plots the Moving Average (MA).  I prefer the 30-period weighted moving average.  The 20-period exponential moving average is fine also.

           Guidelines  

  • We are looking to take the trade in the direction of the Moving Average (MA).

  • The Slow Line (SL) crosses over the BL in the direction of the moving average.

  • The Fast Line (FL) then crosses over the Base Line (BL) in the opposite direction.

  • We are now in the "zone of opportunity" to take a low risk sell in the direction of the Moving Average.

  • Once in the zone, we place stop orders or stop limit orders to initiate the trade in the direction of the Moving Average.  The first order is placed when the first completed price bar has moved the indicators into the appropriate relationship to create the zone.

  •  As the price bars continue to form, the order is moved upon completion of each new price bar.  Eventually, the order is hit as prices return to the direction of the Moving Average and we are in the trade.

  • A stop loss order may be placed at the opposite end of the price bar entry.  This may be an actual stop loss order or one can monitor the trade and exit only if a close occurs beyond the stop loss point.

  • Exit for the profit point depends on use of multiple contracts and the relationship of the time frame of the entry compared to the larger time frames.

 

  • The MACD is a momentum indicator composed of two moving averages, a Fast Line (FL), a Slow Line (SL). A Base Line (BL) is the third component of the standard MACD.

  •  The values used are: 3, 10, 16 all simple based on close

  •  We are comparing the relationships of all three lines to each other to establish the set up in a "zone of opportunity."  Once in the zone, the price bars decide the point of entry.

  •  The chart plots the Moving Average (MA).  I prefer the 30-period weighted moving average.  The 20-period exponential moving average is fine also.

 

Guidelines  

MACD CONSERVATIVE  SELL
 
  • In this sell example of the electronic Nasdaq mini contract, we see that the MA is down and the slow line < base line and fast line > base line.  

  • First completed price bar in this zone is bar #1.  

  • A sell stop is placed just below the low of this bar. 

  • When bar # 2 is completed, the sell stop is moved to just below it's low. 

  •   On the third bar (arrow), the prices fall below the sell stop order and we are short.  

  • The initial stop loss point is the high of bar # 2.

 

 
MACD CONSERVATIVE BUY
 
  • In this example in Bonds, the SL > BL and the FL < BL.
  • The Moving Average is up.  We are in the "zone." 
  • The first completed price bar in the zone is # 1 and a buy stop is placed just above the high of the bar.  
  • When bar # 2 is completed, the buy stop is moved to just above the high of # 2.  
  • In the third bar, the price is above the new buy stop and we are in the trade and long.  
  • Since the # 2 bar is so long, we would place the original stop loss about half way up the # 2 bar in this case.

 

 

 

 

 

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