In the first part, I discussed chart patterns and the RSI indicator on the hourly chart.
Now In this chapter, I will be looking at the MACD and Stochastic indicators.
Also, I will be looking at Litecoin today on the smaller time frames as on the daily chart and above the trend is too strong to analyse with both indicators (depending on how you use them).
Again I will be taking a sample set of 20 trades and present the results.
Once again I will be using a one to three risk to reward ratio and will be using the previous wave low as the stop loss.
The way we will be looking for signals is in the overbought and oversold areas and looking for a stochastic moving average crossover.
Out of 20 trades, 14 lost and 6 won.
Again with the 1 to 3 risk to reward ratio and a risk limit of USD 200 to USD 600 reward, this means a total of -USD 800.
The problem seems to be the amount of time the indicator can stay in the overbought and oversold zone.
The indicator can continuously crossover while being in extreme areas.
So with the MACD we will be looking at the histogram and the moving average crossover.
The histogram has to be in the direction of the trade and the cross over has to be in the direction of the histogram.
This strategy produced very different results with 11 losers and 9 winners.
Winners made USD 600 per trade, while losers lost USD 200 per trade.
Which means a profit of USD 900.
This momentum-based strategy proved very successful but the signals were lagging in nature.
The interesting thing about this market on this timeframe was that the MACD indicator seemed to catch the velocity of the moves
The filter only worked if the crossover happened in the same direction of the histogram. ie. if the histogram was below zero the crossover has to be below zero.
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