MACD strategy

This is another simple strategy. This time we will use the MACD indicator (e.g. MACD(12,26,9)). This is illustrated in the graph below:

MACD

At first, we will test that stocks that are currently in S&P 500 index. Here are some selected results (using NinjaTrader software using data from Kinetick)

Profit factor 1.21
Max. drawdown -58.65%
Number of trades 80492
Percent profitable 39.61%
Average trade 1.43%
Ratio win/loss 2.18
Average time in market 18 days

At first, we have to react to the huge maximum drawdown (almost 60%), as well as a low percent of profitable trades. Thus, this strategy is not for everyone because we have to expect many unpleasant surprises. Besides, the number of trades is also very large and this indicates that signal to enter occurs very often.

Now, let us do the same for stocks from Russell 3000 index. The results are as follows:

Profit factor 1.07
Max. drawdown -64.46%
Number of trades 348640
Percent profitable 38.79%
Average trade 7.88%
Ratio win/loss 4.67
Average time in market 18 days

The conclusions are as above. Of course, the maximum drawdown makes this simple strategy even less promising.

Kevin Luo published an article: “Critical MACD levels” in Technical Analysis of Stocks & Commodities (October 2016) in which the author suggested entering a trade only if the MACD(12,26,9) was lower than 0.0 but higher than -1.5. In other words, we filter out some potential entries. Let us check this new strategy.

Again, we will test that stocks that are currently in S&P 500 index. Here are some selected results (using NinjaTrader software using data from Kinetick):

Profit factor 1.42
Max. drawdown -42.96%
Number of trades 37307
Percent profitable 42.31%
Average trade 2.20%
Ratio win/loss 2.24
Average time in market 22 days

Now, let us do the same for stocks from Russell 3000 index. The results are as follows:

Profit factor 1.51
Max. drawdown -53.18%
Number of trades 177292
Percent profitable 40.46%
Average trade 9.55%
Ratio win/loss 4.54
Average time in market 22 days

The new strategy really outperforms the “standard” MACD-strategy. Of course, it is still difficult to recommend the new strategy as it is, but perhaps it can be combined with some other strategies. This I did not test.

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