Getting Started With A Simple MACD Trend Following System

Do you catch yourself putting off actually trading in order to continually test and refine different types of trading systems?

Allowing small details of a system to hold up their trading altogether is one of the biggest mistakes that I see new traders making. While it is never prudent to rush into trading without doing the proper homework, many beginning traders take that “proper homework” part too far.

One key aspect of trading is ACTUALLY TRADING. This is a simple system to get you started.

Once you have a general understanding of what types of systems are out there, the best thing you can do is pick one system and start trading it. You should obviously take precautions to make sure that you are properly capitalized and implementing good risk management practices, but after that you have to learn to actually pull the trigger.

An article posted on Daily FX by Walker England provided a nice example for setting up a very simple MACD Trend Following System designed for EURCAD. The first step he identifies in his system is a method of determining the overall trend:

One of easiest ways to find the trend is through the drawing of a trendline.

Traders can connect the lows in an uptrend and find a clear area of where price is supported. Below we can find an ascending trendline on the EURCAD.

Given the information above, traders should look to buy the EURCAD as long as it remains supported.

If the trend continues, expectations are that price will remain above support and new highs will be created.

Once Walker identifies the trend, he knows that he is looking to place trades in that direction. He then uses the MACD indicator to identify his entry points:

One of the easiest ways to find a technical trigger is through the use of an indicator.

Below we can see the EURCAD daily graph, this time with MACD added.

Since we have identified the EURCAD in an uptrend traders will look to buy when the MACD when momentum returns to the underlying currency pair.

This occurs whenthe Red MACD line to crossover the Blue Signal line, prior to executing their orders.

For the risk management aspect of this simple trend following system, Walker suggests putting stops under the trendline:

When trading markets, there will always be a degree of risk.

When trading trends, it is important to know that they will eventually come to an end.

In an uptrend like the EURCAD, traders may place stops under the established line of trendline support.

In the event that price breaks under support, traders will wish to exit any existing positions and look for other opportunities

If you’ve spent any amount of time reading this site, you have probably already seen much more sophisticated strategies that contain more indepth analysis and backtesting results. That means you know enough to get started.

Even if you are just paper trading, the experience of actually trading a specific system will give you far more knowledge than reading about yet another type of trend following system.