Personally, I love the MACD indicator because of its reliability and its ability to work well with other indicators to form a trading strategy. In my previous posts, I have gone through how you can make use of forex MACD indicator in your trading and how you can trade MACD crossover for profit.

In this post, I will go through how I actually trade with MACD divergence and how you can make use of it to form a trading strategy for yourself. If you are not sure about what divergence is, you can look at my previous post "Forex MACD Indicator Explained" and I will now go through the steps on how you can profit from the divergence.

The MACD divergence is a very powerful phenomenon that you can trade with. However you need to understand that the divergence works well only when there is a trend as MACD divergence is an indication of a upcoming reversal.

Here are how I trade the divergence myself:

Step 1: You have to make sure that there is a trend in action for the currency pairs you are trading. The best way to identify a trend is to use several moving averages. First, you plot a 20 EMA, 50 EMA and a 100 EMA moving average and see if they are stacked nicely in a nice manner. If they are stacked nicely with good angle and separation, it is a good indication of a trending market and if the EMAs are flat and mixed, there is no trend in the market.

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Step 2: Observe the MACD and the price to look for divergence.

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Step 3: Look for good reversal candle patterns like railway track, hammer and hanging man.

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Step 4: Draw a trend line and wait for breakout.

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Some of you may think that how can it be so simple? In fact, the most profitable trading strategy is one that is simple and not sophisticated.

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Kelvin is basically a full time forex trader. Before getting into the field of forex trading, he used to work as a process engineer in a multinational company. he was introduced to this field by one of his friend who had also quit from day job to be a full time trader today.

Please visit my website for more information.

E-Mail: forexkel@forexindicator.org
Website: http://www.forexindicator.org