Hama and MACD with EMA Strategy For MT4

Hama and MACD with EMA Strategy For MT4

 

Table Of Contents:

  1. Hama and MACD with EMA Strategy For MT4
  2. Indicators Used and Time Frames
  3. Trading Strategy
  4. Long Entry
    1. Stop Loss and Take Profit
  5. Short Entry
    1. Stop Loss and Take Profit
  6. Conclusion

 

Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.

 

The Hama and MACD with EMA Strategy For MT4 is yet another trend-following strategy for short term traders which uses an indicator to predict the trend of the asset, and subjects this prediction to confirmation using a momentum indicator. The strategy is easy to implement and is built for use on short term charts, making it suitable for intraday and swing trading use.



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Indicators Used and Time Frames

The strategy makes use of two custom indicators and is built for use on the 30 minute and 1-hour time frames. These indicators are as follows:

 

    • MACD with EMA (10, 20,6, 7);


    • Hama (3,13, 3).

 

Hama Indicator

The Hama indicator is a colour-coded trend-seeking indicator that is made up of a 3-period moving average as well as a 29-period moving average. These moving averages have been merged into a single moving average line, which changes colour along with the change in the trend of the asset. The colour change for an uptrend is blue, while a pink colour is applied to the indicator when the trend reversed into a downtrend. There are times when there are colour changes even when the asset is trending.

These are the times when the trader must seek confirmation from the momentum indicator. Even at that, a trend reversal is usually valid when the preceding trend has been on for some time. Therefore, the trader is also required to apply some commonsense when using the indicator, by only trading situations when there is a trend to change. An uptrend can be changed into a downtrend, and vice versa. In a sideways trend, there is no trend to change.

MACD with EMA Indicator

The MACD with EMA indicator is the momentum indicator used to confirm the signals generated by the Hama indicator. It combines the elements of the MACD histogram with the exponential moving averages that have been set to the 10-period, 20-period and 1-period timelines. The fast and slow EMA lines are set to 10-period and 20-period moving averages, while the 1-period EMA is the signal generating line. The signal line is yellow in colour, and there will be times when the histogram bars are above this line or below it, irrespective of whether the midline has been crossed or not. The relevance of this information to the strategy will be displayed shortly.

The MACD with EMA indicator shows the signal of trend change as the colour changes which occur when the histogram bars cross the midline. The midline for the momentum indicator is set at 0.0.


Trading Strategy

 

The trading strategy depends on the MACD with EMA indicator confirming the signals generated by the Hama indicator. The uniqueness of this strategy is that there is a conservative setup, and an aggressive setup.

The conservative setup waits for the MACD histogram bars to cross the midline and perform a colour change, before a trade is initiated. The aggressive setup preempts the midline cross, by initiating the trade when a single MACD bar has changed position on the EMA signal line, even when the indicator has not crossed the midline in the same direction. These two strategies are shown below.

 

  • Long Entry

 

These are the long trade parameters:

 

    • Allow the Hama indicator to turn blue in colour, after a period where price has been trending downwards for some time.

 

    • Conservative entry for MACD: Watch for when the MACD histogram bars cross the midline and change from a red colour to a green colour. The trade period should be within the first three bars of the MACD histogram. Enter the trade at the open of the candle which follows the confirmation on the price chart.


    • Aggressive entry for MACD: Do not wait for the midline cross. Rather, once a red coloured bar has crossed above the yellow dotted EMA signal line, and the Hama indicator colour has changed to a blue colour, initiate the long trade at the open of the next candle.

 

The snapshot below displays what traders should seek when trading this strategy with the aggressive and conservative setups.


The chart shows an aggressive setup and a conservative setup. For the aggressive setup, notice that the midline had not been crossed yet, but the MACD bars were on top of the yellow EMA signal line. This allowed for a long entry as the Hama indicator colour had already changed to blue. The conservative setups showed the regular midline cross.

 

Stop Loss and Take Profit

Set the stop loss below the low of the candles that cluster around the entry price point. For this strategy, a risk-reward ratio of 1:2 is ok.

Set the Profit target point (TP) using a prior resistance as the benchmark, as shown in the chart. Due to the fact that the profits being chased at a time are small, you can decide to close half the position when you are 20 pips in the green, then move the SL to the entry price point and allow the rest of the position to run.

 

  • Short Entry

 

Here are the parameters for the short trade.

 

    • The Hama indicator should turn red after a period where price has been trending upwards.

 

    • Conservative entry for MACD: Allow the MACD histogram bars cross the midline and change from red to green. Enter the short position at the open of the candle which follows the confirmation. Entry should be made within the first three bars of the MACD histogram.


    • Aggressive entry for MACD: Do not wait for the midline cross. Once the green coloured bar is now below the yellow dotted EMA signal line, and the Hama indicator is pink coloured, go short at the open of the next candle.

 

Stop Loss and Take Profit

Set the stop loss above the highest point of the candles clustering around the entry price.

Place your Take Profit (TP) level at a point that is slightly above a previous support. Profits being targeted are usually small. So it makes sense to close half the position at 20 pips or 25 pips, then set the SL at the entry price and allow the trade to chase whatever is left of the downward move before the trend changes, or when the price gets to the targeted TP area.

 

Conclusion

This is a great strategy which can deliver quick profits that can be compounded over time to get good returns. The aim of this strategy is to take small profits from the market over time and across several currency pairs.

Download the complete system description and the files here:

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