MetaTrader 4 Platform Overview

Technical Analysis Indicator MACD part three

The final wrap up in the three part series on MACD

MACD Hidden Bullish and Bearish Divergence

MACD Hidden divergence is used as a possible sign for a trend continuation.
This setup occurs when price retraces to retest a previous high or low.
1. Hidden Bullish Divergence
2. Hidden Bearish Divergence

Hidden Bullish Divergence
Forms when price is making a higher low (HL), but the MACD oscillator is showing a lower low (LL).
Hidden bullish divergence occurs when there is a retracement in an uptrend.


MACD bullish divergence

This divergence confirms that a retracement move is complete. This divergence indicates underlying strength of an uptrend.

Hidden Bearish Divergence

Forms when price is making a lower high (LH), but the MACD oscillator is showing a higher high (HH).
Hidden bearish divergence occurs when there is a retracement in an uptrend.


MACD bearish divergence

This setup confirms that a retracement move is complete. This diverging indicates underlying strength of a downtrend.

NB: Hidden divergence is the best divergence to trade because it gives a signal that is in the same direction with the trend. It provides for the best possible entry and is more accurate than the classic type of diverging.

MACD Classic Bullish and Bearish Divergence

MACD Classic divergence is used as a possible sign for a trend reversal. Classic divergence is used when looking for an area where price could reverse and start going in the opposite direction. For this reason classic divergence is used as a low risk entry method and also as an accurate way of exit out of a trade.

1. It is a low risk method to sell near the market top or buy near the market bottom, this makes the risk on your trades are very small relative to the potential reward.

2. It is used to predict the optimum point at which to exit a Forex trade
There are two types:

1. Classic Bullish Divergence
2. Classic Bearish Divergence

Classic Bullish Divergence

Classic bullish divergence occurs when price is making lower lows (LL), but the oscillator is making higher lows (HL).


MACD Classic bullish divergence

Classic bullish divergence warns of a possible change in the trend from down to up. This is because even though the price went lower the volume of sellers that pushed the price lower was less as illustrated by the MACD indicator. This indicates underlying weakness of the downward trend.

Classic bearish divergence

Classic bearish divergence occurs when price is making a higher high (HH), but the oscillator is lower high (LH).



MACD Classic bearish divergence

Classic bearish divergence warns of a possible change in the trend from up to down. This is because even though the price went higher the volume of buyers that pushed the price higher was less as illustrated by the MACD indicator. This indicates underlying weakness of the upward trend.

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A Simple Day Trading Strategy by Markus Heitkoetter : " In this video I am presenting a simple day trading strategy using Bollinger Bands and MACD."

Time flies, doesn't it?

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And now - just 10 short years later - I'm living right at Lake Travis in Austin, TX. As I am writing these lines, I'm sitting on my deck overlooking the pool. It's December, but the temperature are still in the upper 70s, and I'm feeling the warm sun on my face. Behind the pool I see the sail boats gracefully gliding through the lake. The kids are 7 and 9 years old now, and they are playing with Riley, our border collie.

Over the past 10 years I have been able to focus on trading and achieve what many would call "The American Dream." I am my own boss now, and life is good.

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The Complete Guide to Day Trading: A Practical Manual From a Professional Day Trading Coach

A Simple Breakout Day Trading Strategy

Here's a simple breakout day trading strategy that you can use for your day trading - by Markus Heitkoetter

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The Complete Guide to Day Trading: A Practical Manual From a Professional Day Trading Coach
by Markus Heitkoetter

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From August 1, 2014, MetaTrader 4 desktop terminals older than build 600 will no longer be supported. However, many traders still work with outdated versions and are unaware of the updated platform's features. We have put a lot of effort into development and would like to move on with traders and abandon the older builds. In this article, we will describe the advantages of the new MetaTrader 4.

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Discover the Psychology within trading and its importance in order to be a trader who can make money consistently.

From Demo to a Live Forex Account

"Going Solo" From Demo to Live Accounts: Lessons from the Air

High frequency trading has roiled the stock and bond markets. The machines have taken over, and they can do far more business than a human can. But HFT has plenty of risk attached, as this short video explains.

Talking Points:
-Why Mess With a Good Thing?
-The Purpose of Heikin-Ashi
-Trading With New Vision

“You can observe a lot by just watching.”
Yogi Berra



Candlesticks are a great tool to help you see sentiment in real-time. However, there is something deeper than what the candlestick is showing you. That something deeper is your fear of being on the cusp of a reversal against your position. Therefore, a false signal of Candlesticks can be costly where as Heikin-Ashi would have likely kept you in the trade as this article will explain. Heikin-Ashi is a free indicator available to be added, like a moving average, to your chart.

Heikin-Ashi (Right) Smooth Out Trends



Why Mess With a Good Thing?

The short answer to this question is that there is a lot of noise with candle to candle price action which can make some candlestick signals misleading. How they are misleading is when you get more noise than signals. Even though candlesticks can help you to find & confirm higher-probability entries when a reversal is shown by other tools or techniques, traders need to be aware of a potential false signal.



Heikin-Ashi also simplifies the process of visualized trading. If you’re familiar with Candlesticks, you may be aware that there are over a hundred documented Candlestick patterns. This means that not only is it difficult to learn all candlestick patterns, but as you can see above, there not always reliable. The highlighted boxes above are to highlight reversal signals, known as Shooting Stars that did not result in a true market turn and could be seen as noise vs. a true signal.
Bottom Line: Candlestick Trading doesn’t always provide clean signals and can produce noise in a strong trend.

The Purpose of Heikin-Ashi

Heikin-Ashi is a visualized balanced candle so that you can filter price of the current move for the overall trend. Heikin-Ashi is sometimes known as an average candle to replace or confirm candlestick patterns. As you can see from the calculation, Heikin-Ashi averages out the prior candle to build a bias for the overall trend continuation and the current candle.

Heikin-Ashi Formula

Close = (Open+High+Low+Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)

By looking at the calculations, you’ll be able to see that Heikin-Ashi is a technique which looks at the average price of a candle and uses that to plot the next candle’s open. Because the current candle is plotted based on the prior candle’s average, you’ll notice a sequence of same-colored candle bodies to show a clean trend with longer bodies & candlewicks in the direction of the trend showing you strong trends.

Few Red Heikin-Ashi Candles Show a Strong Trend



Trading With New Vision

Heikin-Ashi doesn’t look for traditional candlestick patterns. Rather, when using Heikin-Ashi, you’re looking for a strong trend to stay in while always managing risk with a trailing stop. When the bodies get weaker / smaller or begin to change color, then a reversal and / or correction is on hand, it’s time to step aside from the trade as the future is increasingly uncertain in respect to the prior trend you were trading.

The strongest trends are displayed with a shaved Heikin-Ashi candle. If you are trading an uptrend with Heikin-Ashi applied to your charts, and the current candle shows no candlewick to the downside, the trend is very strong and it is best to stay in the trend until either a red candle appears which my preference is or a bottom candlewick forms. This form of trade management provides an active and intelligent trailing stop so that you’re only exiting on a likely consolidation that can chew up time or a reversal is on hand.

Trailing Stop Example




Closing Thoughts

Heikin-Ashi allows you to “trick” your eye to staying in the strong trends that can throw off weak or false reversal signals. This trick is based on averaging the prior candle so that the current price action is only filtered through the prior candle as opposed through the time of the prior candle. If you have trouble jumping out of a trend well before it’s done, Heikin-Ashi could be a helpful indicator for you.

Happy Trading!
---Written by Tyler Yell, Trading Instructor


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