The MACD and the ADX are the most powerful indicators. But the most important fact of stock markets is to bypass false signals and false breakouts. Various parameters have to be combined to take the right pick at the right time in direction of the trend.
Here is a simple MACD ADX strategy that can be opted to trade.
1. MACD Zero Cross Up and
2. +DI should be greater than -DI
1. If MACD is above Zero then wait for +DI and -DI positive cross overs to happen. But an early entry can be made if at this point the ADX is above both DI’s and had just turned down signalling a change in current trend.
1. MACD Zero Cross Down
2. -DI should be greater than +DI
1. If MACD is below Zero then wait for +DI and -DI negative cross overs to happen. But an early entry can be made if at this point the ADX is above both DI’s and had just turned down signalling a change in current trend.
Other precautions to be taken are :
1. Watch the price levels with respect to Bollinger Bands. If a positive trend is seen in formation and the prices are at lower Bollinger Band then keep a target of middle Bollinger Band. Similarly if prices are at middle Bollinger Band then keep a target of upper bollinger band.
2. Watch the Prices at crucial EMA crossing like the 200 Day EMA.
3. Watch the Herrick Payoff Index which is a combination of Volumes and Open Interest can be used as a yardstick. 4. If prices are in uptrend for a long time with the MACD above zero for a longer period and there is a DI Positive Cross then, its better to do a very detailed analysis before entering into the stock.
5. Use your favorite MACD and ADX values and do proper back testing for various ADX and MACD values and then set the best suited for your markets.