Swing Trading With MACD Insight

Posted in: Advanced Trading Strategies, Forex Trading, Swing Trading, Trading Article

I made a piece on using the MACD modified into the 3/10 oscillator and mentioned I would show a real life and recent example.

Swing trading Forex is something I’ve been doing for quite a while and living in Canada, my favorite currency pairing to swing trade is the USDCAD.

Even though I say it was a swing trade, it is actually a position trade that has been added to over the last four years.

At times, it is not a leap to make a swing trade into a position trade especially when the drivers of the moves has changed.

 

Related – Learn The 3/10 Oscillator – MACD Version

 

CAD Oil Correlation

There is a high correlation between oil prices and the USDCAD currency pairing. Currency traders should know that the CAD (the loonie) is a commodity currency and Canada exports about 97% of total crude exports to the United States.

When oil prices drop, the CAD weakens against the USD.

An increase in the price of oil generally means a stronger CAD.

The oil/CAD correlation is not 100% as there are times of divergence in prices however it’s high enough for any trader to consider adding it to their trading list and tracking oil prices as well.

A side benefit is that when oil prices increase, gas prices usually increase, and trading this pair can help offset the pain at the pumps.

I want to break down a recent decision on the USDCAD and especially highlight the usage of the 3/10 oscillator (modified MACD) along with other analysis to aid in the decision.

 

Swing Trading With MACD

The weekly chart is clearly in an uptrend. When looking at swing trades/position trades, having a bigger picture view helps define your play.

USDCAD MACD

Just looking at the condition of price, do you see “orderly” price movement as opposed to choppy ranging type of action?

I do and that makes it a great chart to trade!

  1. A simple trend line connecting two recent lows that have taken out prior swing high levels.
  2. Going back to the piece on the 3/10 oscillator, the slow line has crossed the zero line and is setting up a first cross trade to the upside.

You get a jump on the momentum shift by color coding the slope of the fast line as you can see on the chart

Weekly Chart Breakdown

  • In an uptrend
  • Intermediate time frame is up
  • Momentum is shifting to the upside

Now that you have taken a look at the weekly, dropping down to the daily can help get a more involved look at what is playing out.

 

Daily Chart Swing Trade Setup

There’s a lot going on with this chart and it highlights basic technical analysis but also how effective the modified MACD indicator can be.

swing trading macd

1. This line represented structure to the left (off the chart) that was resistance for 166 days.

2. The yellow highlighted line represents symmetry to another corrective decline in this uptrend.

3. Marks an obvious pivot that ends in a pin bar that many traders would classify as a sound rejection of lower prices and a possible support zone. It was actually a failure test of a range that was in place for 24 days.

4. The 3/10 (modified MACD) puts in a lower low compared to the previous low. Price behaved the same. The low lines up with the swing that was put in with price just prior to a test of the support level (1). This is a sign to sell the next swing in price.

The short trade works into profit if you shorted but you are shorting into a potential support area.

Shorting into support is not a high probability trade but depending on trade management, a scratch or a small profit would have been made on this chart.

Continuing with #4, price is moving down but the fast line of the 3/10 is showing momentum to the upside. That is a strong heads up that the down move is coming to an end.

5. Notice that the trading indicator puts in a higher high on the bounce off support (as does price) which tells you to be on alert to buy the next swing down in price.

6. Price corrects to the swing point at #3. It is also a perfect symmetry with the last swing leading into the support rejection.

 

Trading Indicators Plus Price

In the chart, there were two great buying zones however there were traders that sold the swing down right after the bounce off support.

You may be thinking that traders saw the nine bear candles plus a pivot low taken out and thought the pullback off support was a shorting opportunity into the low at #6.

You would be right and the move down makes that obvious.

Those who shorted had a few days to rethink their trade before they became trapped.  Trapped traders bring on a whole different rhythm to the market.
 

Related – What Are 3 Very Useful Trading Indicators?

 

But using straight technical analysis plus understanding what the 3/10 MACD is telling you, you would not be one of those traders.

The weekly chart through a combination of technicals and the MACD 3/10 style oscillator that the trend (intermediate and long term) is up and momentum is to the upside.

A lot of information came through the daily USDCAD chart including a swing analysis with the MACD plus momentum to the upside while price was moving down.  We then had a first cross setting up a long entry at point #6.

Trade Swing Entries

  1. Is at the correction to support (also market symmetry setup) as momentum turned to the upside on the 3/10 MACD as price was moving downwards.
  2. Corrective move finding support at pivot #3, a symmetry pullback, and swing analysis using the MACD

The swing analysis using price swings and the 3/10 MACD fast line swings is a really great tool in adding a confluence to your current trading setups.  It is something you may want to investigate further.

Price has not done too much since the last pullback and has stalled inside of a 140 pip range.

price action

The MACD fast and slow line have turned down and the fast line momentum swings are lower highs while price made a moderate higher high.  Price is also just below the recent highs.

We may be in for a lengthy range, another correction or perhaps a failure test of the range and then a run for the top.  That would be crystal balling the market which is not something I would recommend.

It does however keep your expectations in check and on alert for other trading opportunities.

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CoachShane

Trader at Netpicks
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.

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