🧠 What is the MACD
Divergence Trading Strategy?
This setup capitalizes on hidden strength within price
action by detecting MACD divergence during retracements below the 100 SMA. The
entry is confirmed once price breaks above the 100 SMA, and stop loss and
targets are set using a classic reward:risk ratio.
✅ Strategy Conditions
To qualify as a valid Buy Trade:
- MACD
Bullish Divergence must be observed:
- Price
forms a lower low, but
- MACD
forms a higher low
- Price
must be below the 100 SMA when divergence occurs
- Entry
Condition: Wait for 2 consecutive candles to close above the 100 SMA
📈 Indicators
- MACD:
12,26,9 (standard)
- SMA:
100 period
- Chart:
H4 or Daily for trend clarity
🔧 Trade Setup Rules
📌 Buy Setup:
- Identify
bullish divergence (MACD HL vs Price LL)
- Confirm
price below SMA100 during divergence
- Wait
for 2 consecutive candles to close above SMA100
- Entry:
On close of second candle above SMA100
- Stop
Loss: Recent swing low where divergence was observed
- Take
Profit 1: 1.5x risk (1:1.5 R:R)
- Take
Profit 2: 2x risk (1:2 R:R)
🧪 Example Trade – EURUSD
H4
- MACD
Divergence Date Range:
- 1st
Point: 2025-01-02 → Price Low: 1.0251
- 2nd
Point: 2025-01-13 → Lower Price: 1.0195, but MACD printed higher low
- SMA100
Status: Price was below SMA100 during both lows
- Entry
Trigger: Two full candle closes above SMA100
- Entry
Price: 1.0420
- Stop
Loss: 1.0175 (just below lowest low)
- TP1: 1.0784
(1:1.5 R:R)
- TP2: 1.0902
(1:2 R:R)
🔍 Strength of This
Strategy
- Uses MACD
divergence to anticipate momentum shift before it’s visible in price
- 100
SMA adds a trend filter to avoid false breakouts
- Dual
TP targets offer flexibility (partial close + trail or full close)
⚠️ Limitations
- Divergence
setups may take time to form
- Requires
discipline to wait for SMA breakout confirmation
- May
miss early entries without SMA confirmation
✅ Conclusion
The MACD Divergence Strategy with SMA100 confirmation offers
high probability reversal entries filtered by trend alignment. It blends
classic technical tools with dynamic confirmation logic, making it suitable for
swing and position traders on H4 or higher timeframes.
Let me know if you'd like the Sell setup variation, or a trailing
TP version added to this!
