Mastering the MACD Head and Shoulders Pattern in Forex Trading

Welcome to our trading community! Today, we're diving into the MACD head and shoulders pattern and how you can implement it effectively in your trading strategy.

If you're looking for the original trading strategy, you can find it here.

We've developed an Expert Advisor (EA) to test the effectiveness of this strategy. You can check out the details and the EA description in the latest issue of our journal here.

Quick Overview of the EA's Algorithm:

• Time Frame: H4
• Currency Pair: EUR/USD
• Volume: 1 lot
• Indicators: EMA7, EMA21, EMA359, SMA89, MACD (5, 13, 1)

Finding Buy Signals:

• The MACD histogram needs to create a minimum below -0.0030.
• Once that minimum is established, look for another lower minimum below -0.0045.
• Next, the histogram should form a higher minimum than the previous two.
• Place a stop order 10 points below the last local minimum.
• For the first target, close 30% of your position when the price moves above the 21-period EMA.
• Close half of your position when the price reaches between the 89-period SMA and the 365-period EMA.
• Finally, close the remaining position when the price hits the resistance level.

Finding Sell Signals:

• The MACD histogram must form a maximum above 0.0030.
• Once that maximum is established, look for another higher maximum above 0.0045.
• Next, the histogram should form a lower maximum than the previous two.
• Place a stop order 10 points above the last local maximum.
• Close 30% of your position when the price falls below the 21-period EMA.
• Close half of your position when the price hits between the 89-period SMA and the 365-period EMA.
• Close the remainder when the price reaches the resistance level.

Testing the EA with Standard Parameters:

After optimizing the parameters:

We've found some solid combinations that work with both past and future data. For more details, check out our journal here.

P.S. All variables have been made available in the external parameters. Feel free to experiment with different settings for intraday charts. Testing with ticks can be beneficial too! If you have any suggestions for updating the EA or questions, don't hesitate to reach out.