🧠 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 then retrace back to
50%, 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:
- 1. Wait
for 2 consecutive candles to close above the 100 SMA
- 2.
Wait for price to retrace 50%.
📈 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:
Once price retrace to 50%
- Stop
Loss: Recent swing low where divergence was observed
- Take
Profit 1: 2.5x risk (1:2.5 R:R)
- Take
Profit 2: 3x risk (1:3 R:R)
🧪 Example Trade – EURUSD
H4
- MACD
Divergence Date Range:
- MACD
Start Point: 2025-01-02 → Price Low: 1.0251
- MACD
End 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
- Take
Buy Limit @ 50% retracement of price
- Stop
Loss: 1.0175 (just below lowest low)
- TP1: 1.0596
(1:2.5 R:R)
- TP2: 1.0658
(1:3 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
- After
Two candles close above 100 SMA, to reduce draw down and risk, we enter
trade @ 50% retracement of price.
- 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
- Once
first price hits TP target without retracement of 50%, then setup will be
void.
✅ Conclusion
The MACD Divergence Strategy with SMA100 Confirmation
provides high-probability reversal setups by combining classic divergence
signals with trend-based filters. This approach enhances reliability by
requiring price confirmation above the 100-period SMA, making it ideal for
swing and position traders using the H4 timeframe or higher.
