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YOU ARE HERE: HOME / TRADING SETUPS / A SIMPLE DAY TRADING STRATEGY USING BOLLINGER &
MACD
A SIMPLE DAY TRADING STRATEGY USING
BOLLINGER & MACD
By Galen Woods in Trading Setups on October 19, 2013
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This simple day trading strategy was published on TradingMarkets.com by Markus Heitkoetter, a day
trading coach from Rockwell Trading. He is also the author of The Simple Strategy – A Powerful Day
Trading Strategy For Trading Futures, Stocks, ETFs and Forex.
This day trading setup uses the MACD indicator to identify the trend and the Bollinger Bands as a
trade trigger.
The MACD parameters are:
12 for the fast moving average
26 for the slow moving average
9 for the signal line
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2 standard deviations for the bands
TRADING RULES
RULES FOR LONG DAY TRADE
1. MACD above signal line and zero line
2. Place buy stop order at the upper band of Bollinger Bands
RULES FOR SHORT DAY TRADE
1. MACD below signal line and zero line
2. Place sell stop order at the lower band of the Bollinger Bands
TRADING EXAMPLES – DAY TRADING WITH
BOLLINGER & MACD
WINNING TRADE
A Simple Day Trading Strategy – Winning Trade
In his article, Markus Heitkoetter used the trading time frame of 4500 ticks for S&P E-mini contract. It
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congestion before
having
a nice b
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managed to catch the beginning of this bear run for a nice profit.
Let’s take a look at this trade in detail.
1. We had the most potent bull run of the day here. However, this higher high coincided with a
lower high on the MACD histogram. This occurrence is a bearish divergence, a warning sign
for reversal. This bearish divergence set an excellent context for short trades.
2. Here, prices fell, and MACD moved below both the zero line and its signal line. That was our
cue for a downtrend. A sell stop order was placed at the lower Bollinger Band to anticipate a
short trade.
3. After the MACD had confirmed a downtrend, a bullish outside bar formed but had little followthrough. It was the last bullish attempt before prices broke down further.
Finally, as prices pushed through the lower Bollinger Band, our sell stop order was triggered. And we
have a winner.
LOSING TRADE
A Simple Day Trading Strategy – Losing Trade
Just like the first chart, this is a 4500 tick chart of the S&P E-mini contract on a full Globex session.
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1. The day started off congested as shown by the increasing tails and smaller bodies on each
candlestick. The constricting of the Bollinger Bands was another indicator that volatility was
dropping.
2. A congestion inevitably leads to a breakout. The three consecutive red bars was the
breakout from the congestion. At the same time, MACD confirmed a downtrend for us, and we
entered short at the lower Bollinger Band. (red arrow)
3. However, the downthrust punched out a lower low that was not supported by the MACD
momentum. That was a bullish divergence that warned us against taking this trade.
Ultimately, this breakout downwards turned out to be a morning fake reversal. We entered short at
the low of the day.
What could be worse? (Not having a stop could be worse.)
REVIEW – A SIMPLE DAY TRADING STRATEGY
USING BOLLINGER AND MACD
Using only two indicators and two simple steps, this is indeed a simple day trading strategy.
I have tried it on different time frames and found this day trading strategy to be surprisingly robust
for catching breakout trends.
By demanding that the MACD rises not only above its signal line but also its zero line, this day
trading strategy can locate short-lived intraday trends. This application of MACD is starkly
different from Gerald Appel’s original basic MACD trade.
If you want to restrict yourself to only high probability trades, take setups that occur after MACD
first crossed the zero line. This rule will keep you in fresh trends and not the maturing ones that
are more likely to reverse.
There is a significant caveat about the exit strategy. I did not follow the exit method
recommended by Markus Heitkoetter as I wanted to keep things simple.
He used a certain percentage of the average daily range of the past seven trading days to determine
his stop and target size. It is a sound approach based on volatility, but it increases the number of
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with your trading time frame. Like what Markus Heitkoetter pointed out, he updates the tick setting
for the instruments they regularly trade to account for changes in market volatility.
So, unless you can keep up with adjusting those parameters, you might want to consider a more
straightforward way to exit your trade.
Tired of complicated trading strategies? Learn how to profit from the
most straightforward two-bar pattern that anyone can spot.
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COMMENTS
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Which program do you use for tick charts? Is there a free solution?
Thank you very much for your article
René
Reply
Galen Woods says
September 29, 2015 at 10:25 AM
I use NinjaTrader for tick charts. It’s free for simulation trading, and you can get a demo
account from any NinjaTrader compatible broker for data. You can take a look at
https://www.tradingsetupsreview.com/ninjatrader-kinetick/ for details.
Reply
JOHN ANYADIKE says
July 10, 2016 at 12:55 PM
thanks for these simple approach, it made my day, l was able to use it with my strategy for
optimal entry and entry, make the market direction clear at a glance. and helps one see
safer entry position and exit .
Reply
Galen Woods says
July 11, 2016 at 10:15 AM
Glad to hear that it’s working for you!
Reply
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January 6, 2017 at 6:58
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Is this strategy applicable to any time frame?
Reply
Galen Woods says
January 11, 2017 at 2:09 PM
This strategy is designed for day trading, but you should be able to adapt it for volatile
stocks on the daily timeframe as well. You will definitely need to experiment with
alternative exit methods for swing trading.
Reply
Mallika says
January 28, 2017 at 1:03 AM
Sir can you sugest free chart for 1 minute to monthly.
Reply
Galen Woods says
January 31, 2017 at 10:11 AM
You can use the free NinjaTrader version for simulation trading for daily time frames
and above. If you prefer a web option, you can check out TradingVIew.
Reply
Galen Woods says
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Hi Alberto, can you ela
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Justin Carelock says
August 3, 2017 at 10:58 AM
Hi Galen, thank you for uploading this. It has beneficial to my practice trading. is there a
specific time frame that this strategy works optimal with?
Reply
Galen Woods says
August 4, 2017 at 11:11 AM
Hi Justin, glad to help! The optimal time frame depends on the market. But
experimenting with tick charts is a good way to start, as this strategy was designed with
tick charts in mind.
Reply
Sumit Sabherwal says
December 2, 2017 at 4:11 AM
I have coded this system in Amibroker and have been using this successfully on Bank Nifty
for myself and clients. However I can not back test this as the strategy code does not give
me that flexibility.
I also use tick data which is only backs to 20 days. Please suggest what is maximum MDD %
for this system.
I had also added the bandwidth expansion to the check the rise in volatility.
Thanks for the writing the system.
q
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December 12, 2017 at 11:14 AM
Hi Sumit, adding a bandwidth expansion to track volatility is a good idea.
The maximum drawdown depends on your exact tick settings and market, so I cannot
suggest a figure here. The best approach for this is to try to load more historical data
into your platform and backtest it. If that’s not an option, forward testing is the next
best option.
(Just to clarify, I did not write this system. As mentioned in the article, it came from
Markus Heitkoette.)
Reply
wbasso says
July 20, 2018 at 3:26 PM
It is a 26,12, 9 ou 12,26,9 for the MACD?
Reply
Galen Woods says
July 21, 2018 at 12:45 PM
Hi there, thank you for asking about that. There’s a typo in the MACD parameters
above. It should be 26 for the slow moving average, 12 for the fast moving average and
9 for the signal line. The slow and fast were labeled wrong, and I’ve corrected them.
Reply
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