Wednesday, December 30, 2009

Difficulties to decide in trading - MACD and Fibonacci

The intention to setup a trade position is not only about to make profit but also setting it correctly so that it does not incur losses. However it is not that easy to decide where is the best setup position when traders are using many methods and strategies which affect the market movement significantly.

In this blog i would like to discuss about two indicators that i feel significantly affect the market but at the same time contradict the signals of one another. The result of this contradiction often caused confusion and making it very difficult to decide when to open position in trading. The indicators are combination of MACD and Stochastic Vs Fibonacci.

The environment of trading where both indicators usually contradict each other is when the market moving in support & resistant area. Where some traders will apply fibonacci as their setup while others use MACD and Stochastic combination.

MACD and Stochastic

At some point MACD and Stochastic can be very confusing when used in support and resistant trading, because it does not require both indicators to be in the same direction to confirm the market movement. In fact stochastic can be more superior than MACD, because traders wants to make fast movement ups and downs. This is not the only factor that need to be considered but also the time frame at which the significant movement will take place is also important. At most popular time frame based on observation is 1 hourly and 4 hourly are very common.

Fibonacci.

The fibonacci traders prefer to use the level of movement based on Fibonacci indicators that they apply on the chart. The significant market movement will take place based on the fibonacci level point regardless of the direction of MACD and Stochastic. Most often traders will use the previous movement to decide their setup position.

So as a result of the above contradiction it is extremely difficult to decide where to setup trading position when they are not synchronize. In this article i am unable to provide solution to the problem, in order to study this problem you need take closer look at the chart and carefully take note of the statistical data.

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