I have been using moving average convergence/divergence and moving average crossovers as trading signals for forex trading but the success rate has been quite low. Most of the times the trades end up meeting the stop-loss. Could someone please let me know the reasons and suggest some better strategies?

Answer
I will try to be short in my answer:

1) MACD or moving averages crossover gives you a buy signal and you buy but the trend in that time frame (will elaborate later) was either downtrend or sideways movement. What are the chances of the buy signal to be true? I would say very less if the take profit target is too ambitious or too far. Action required: Check the status of the trend. You can use indicators like ADX (Average Directional Index) for the same.

2) Trend was in your favor i.e. an uptrend (but not a very strong uptrend) when you placed a long trade based on the crossover signal but what was the volatility of the price movement? In any trend the price retraces back. let's say you are trading on an hourly chart but the average volatility per hour is 50 pips and you placed your stop-loss at 20 pips. The uptrend is no very strong and price retraces back 25 pips before moving upwards again and your position meets the stop-loss. Well, this example needs more elaboration but the summary is that our stop-losses need to have a relationship with the volatility of the movement. If volatility is high then a stop-loss at a narrow gap make make your trade go into losses.

3) You are trading on short-term time frame chart based on the trend of longer time frame chart. The trend situation and the validity of the signals differ from one time frame to another time frame. A daily chart may be showing an uptrend but there may be a downtrend on a 30 minutes' chart. You should consult longer term charts to know the general trend but if you are using shorter time frame charts for your trades then your entry, exit, stop-losses and take profit targets need to be based on that shorter time frame chart.

Summary: You need to be sure about the trend, volatility of the price movement and be very careful of the time frame of the charts you are trading with. Always keep an eye on the larger picture for general trend and the short-term picture for the actual trades 9for short-term trades).

You may find some good information including some of the trading strategies about MACD at http://www.forexabode.com/technical-analysis/macd

Let me quickly touch upon Moving averages also. Apart from all the points above, you need to work with the time frames of moving averages for better crossover signals. I would suggest you to try 2 combinations.

1) 5-period and 22-period moving average crossovers.
2) 10 period and 22-period moving average crossovers

The above two are for double crossovers but if you wish to further cut down the false signals then you may wish to try triple crossovers e.g. 5, 22 and 55 period. But be very careful with the triple crossover as the trend needs to be really very strong with triple crossover signals otherwise by the time the triple crossover takes place, the trend may be reversing the direction and your signal may end up proving false.

You may find some good info about moving averages at http://www.forexabode.com/technical-analysis/moving-averages.

How many different stocks should I have in my portfolio to consider my portfolio well diversified?

Also, is NCC and BSC good long term investments?

Answer
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