Macd

[bulkbiz]

Hi all,

Need your expert advice in fine tuning my system. I am a daily chart trend trader, I will stick to my position until MACD signal line cross over, then I will TP or cut loss. But one thing I don't like about this MACD signal line is - TOO LAGGING! For example GJ recently, I am holding 650pips, but when the MACD signal line cross over indicate trend changes, I only managed to grab 230pips. Any expert opinion on what is the better EXIT strategy for daily trend trading method?

Regards,
bulkbiz

 

[amit1986]

Hi bulkbiz,

I might be able to add some value here, if any. I am currently working on a research paper for my Financial Econometric class and I am investigating whether the moving average crossover is a viable one. To do is, I am looking at the daily closing prices of the S&P/TSX Index. Using these prices, I am able to construct various moving averages and construct daily most portfolio returns of using various combinations of moving averages. For example, one method I have finished working on is the 50 SMA and the 100 SMA. I haven't done any advanced statistical analysis yet, but I have found that the average daily return from November 11, 2000 to March 5, 2010 is approximately 6.45%. Keep in mind this 6.45% number is DAILY average using the SMA 50 and SMA 100. So, if the SMA 50 penetrates the SMA 100 from underneath, then this signals a long position. If the SMA 50 penetrates the SMA 100 from top, then this signals a short position. After having a long (short) position, an exit signal would be generated by the SMA 50 penetrating the SMA 100 from top. In that event, the long position would be closed and a short position would be initiated.

I still have yet to do a more detailed analysis on the data (I am still working on it over the next couple of weeks), but other studies have found some interesting results that I am also noticing in my data. One thing that might be of interest to you is that all short positions yield a negative return! That is, if you initiate a short position in the market because the short moving average penetrates the long moving average from above, then on average, history says that it will yield a negative return when you end up closing that position through a moving average signal. If you keep a record of your trading results, compute the returns of your long positions and that of your short positions. This may be an indication of taking ONLY long positions when you are trading the moving average crossover.

Another study found something even more interesting as a consequence to the above. If you did not take short positions and only took long positions due to a moving average crossover, your return almost doubled! Furthermore, if you closed a long position and instead of initiating a short position, you invested your money into a risk-free asset, your returns increase even more!

I hope the above helps in someway. I have many people say that the moving average crossover strategy is useless, but the numbers in front of my screen speak for themselves.

One last thing. Don't be upset that you only grabbed a profit of an X number of pips - the fact that you are even making money says that you are beating most of the traders out there!

Amit

Hi all,

Need your expert advice in fine tuning my system. I am a daily chart trend trader, I will stick to my position until MACD signal line cross over, then I will TP or cut loss. But one thing I don't like about this MACD signal line is - TOO LAGGING! For example GJ recently, I am holding 650pips, but when the MACD signal line cross over indicate trend changes, I only managed to grab 230pips. Any expert opinion on what is the better EXIT strategy for daily trend trading method?

Regards,
bulkbiz

 

[bulkbiz]

Hi Amit,

Thank you very much for the advice and your analysis. Actually my entry signal is based on renko chart. But in order to maximize the profit and minimize the losses, I need some indicator to help. So far for non volatile pairs, my method is good. But Amit, did you test in forex market?

A lot of people misunderstood and get the word "trend trading" wrongly. Trend trading has no specific take profit level. When I shared with my friends about my trading strategy, they earn more than me, reason is because when the pips reaching 700-800pips, regardless of the trend is still moving on their favor, they will take profit. But in fact that is not consider as trend trading already, they violate the rules.

MACD is the only indicator for me to identify the trend changes currently, any other value advice for me? Remember my rule is cut losses when the market is ranging and let the profit run when market is trending, I don't want any trailing stop, fibo level, round number, psychological number and so on. I just need some indicator/method to detect earlier trend changes.

Hi bulkbiz,

I might be able to add some value here, if any. I am currently working on a research paper for my Financial Econometric class and I am investigating whether the moving average crossover is a viable one. To do is, I am looking at the daily closing prices of the S&P/TSX Index. Using these prices, I am able to construct various moving averages and construct daily most portfolio returns of using various combinations of moving averages. For example, one method I have finished working on is the 50 SMA and the 100 SMA. I haven't done any advanced statistical analysis yet, but I have found that the average daily return from November 11, 2000 to March 5, 2010 is approximately 6.45%. Keep in mind this 6.45% number is DAILY average using the SMA 50 and SMA 100. So, if the SMA 50 penetrates the SMA 100 from underneath, then this signals a long position. If the SMA 50 penetrates the SMA 100 from top, then this signals a short position. After having a long (short) position, an exit signal would be generated by the SMA 50 penetrating the SMA 100 from top. In that event, the long position would be closed and a short position would be initiated.

I still have yet to do a more detailed analysis on the data (I am still working on it over the next couple of weeks), but other studies have found some interesting results that I am also noticing in my data. One thing that might be of interest to you is that all short positions yield a negative return! That is, if you initiate a short position in the market because the short moving average penetrates the long moving average from above, then on average, history says that it will yield a negative return when you end up closing that position through a moving average signal. If you keep a record of your trading results, compute the returns of your long positions and that of your short positions. This may be an indication of taking ONLY long positions when you are trading the moving average crossover.

Another study found something even more interesting as a consequence to the above. If you did not take short positions and only took long positions due to a moving average crossover, your return almost doubled! Furthermore, if you closed a long position and instead of initiating a short position, you invested your money into a risk-free asset, your returns increase even more!

I hope the above helps in someway. I have many people say that the moving average crossover strategy is useless, but the numbers in front of my screen speak for themselves.

One last thing. Don't be upset that you only grabbed a profit of an X number of pips - the fact that you are even making money says that you are beating most of the traders out there!

Amit

 

[trendie]

very illuminating post, amit1986, regarding that only long positions were profitable, and usefully so.

I have heard somewhere or other that markets fall 3 times faster than they rise, so perhaps a falling market has a different characteristic than a rising one.

Did you do any work on the number of days a market rose, and the amount it rose in those days?
And, see how many the days the market fell, and by how much per day?
And thus, deduce anything useful?

That kind of insight could help to quantify an optimal setting for short-only triggers on the MACD?

 

[Lord Flasheart]

Have you looked at stake variation. Using Mas you will always lose lots of pips at the end of a trend. Why not take some of the position off ( i generally take 1/3 off, then another 1/3).
IMHO looking at Risk/Reward and money management is far more important and has to be built into any decent system anyway

 

[nunrgguy]

Interesting stats but IMO just trading a single MA crossover on a single time frame...you're onto a loser, especially if you 're waiting for the same MA cross to close.

Why choose those particaular MA's what significance do they have, if any?

Shorts lost on average to longs - sounds like a bull market to me.

I use MAs but I use them for 2 reasons only. Firstly, they save me drawing and redrawing trend lines and secondly they allow me to see the trend as seen on different time frame charts on a single chart.
As an example, on the minute chart if you put the 5, 15, 60, 240 MA's you're approximately seeing how movements on the minute chart are affecting the higher timeframe charts.

While I've never experimented or tested it, so can't comment with any authority, I've never understood the logic behind having max exposure on entry then reducing it as the trade progresses. It doesn't make any sense at all but I suppose it depends on how you manage your exit and how many pips you generally give back at the end of a move.

 

[timsk]

MACD is the only indicator for me to identify the trend changes currently, any other value advice for me? Remember my rule is cut losses when the market is ranging and let the profit run when market is trending, I don't want any trailing stop, fibo level, round number, psychological number and so on. I just need some indicator/method to detect earlier trend changes.

Hi bulkbiz,
This is probably of no interest but it's something to mull over if you don't get any more promising avenues to explore! I use macd too, but not the standard lines - precisely for the reason you give. I use the histogram only.
Attached graphic shows four charts.
1-3 are daily and chart 4 is weekly, all of the GBP/JPY pair. All charts show what is normally represented by the macd histogram as a red / green line. Charts 3 and 4 have the standard macd displayed as well so you can compare the two. As you can see, the histo' line is barely lagging at all when compared to the 'standard' macd crossover lines. It's MUCH faster!



Like any indicator, using it well requires a number of things:
1. One must understand how it's constructed and what it tells you.
(On a general note, there are three good short videos on macd in the video section of the site worth viewing: 3 macd videos The third vid' discussed the histo' line in some detail and is the most interesting of the three, IMO.

2. Have a good idea when to trust any signals and when to ignore them.
A good rule of thumb here is to be wary of signals (i.e. red turning to green or vice versa) that occur in the vicinity of the central blue zero line. In chart 1, price is held in a tight range, and the histo' line is chopping about. As a trend trader, you probably wouldn't be a trade at that point. However, compare price and the line from the start of the year to Jan 21st. Price is horizontal, while the histo' line is (gently) falling. A sign of weakness. So, in the event that you were holding a short position, you might hang on because price will break out of the range sooner or later and more profit might be available to you.

3. Not rely on them in isolation.
My view is that they need to be confirmed by something else (e.g. price action or a complementary indicator). I like to use P&F charts, but here I've shown a Heikin-Ashi chart for its graphic simplicity. Waiting until you get a red candle AND a red line (or green candle and green line) will irradicate many false signals. If you'd held on to your notional short trade, you could have held it until around the 12th Feb when the histo' line is green and rising, AND the Heikin-Ashi candles are green.
Cheers,
Tim.

 

[bulkbiz]

Thanks all for the value advice, I think I will come out this rules, for super volatile pairs, I will just take profit once the risk to reward is 1:3, for others pairs, I will just stick to the original rules. I will stick to this new rules and let's see how is the result.

In case you all have time, try to check renko chart, it is a very good chart for trend traders.

Regards,
Thian

 

[bulkbiz]

Thanks! Your post came right after I replied the previous member. Will definitely take a look on the histo line, your answer is exactly what I need in this discussion forum. Thanks to you!

Well I do hope there are more value reply coming in

Hi bulkbiz,
This is probably of no interest but it's something to mull over if you don't get any more promising avenues to explore! I use macd too, but not the standard lines - precisely for the reason you give. I use the histogram only.
Attached graphic shows four charts.
1-3 are daily and chart 4 is weekly, all of the GBP/JPY pair. All charts show what is normally represented by the macd histogram as a red / green line. Charts 3 and 4 have the standard macd displayed as well so you can compare the two. As you can see, the histo' line is barely lagging at all when compared to the 'standard' macd crossover lines. It's MUCH faster!

View attachment 77998

Like any indicator, using it well requires a number of things:
1. One must understand how it's constructed and what it tells you.
(On a general note, there are three good short videos on macd in the video section of the site worth viewing: 3 macd videos The third vid' discussed the histo' line in some detail and is the most interesting of the three, IMO.

2. Have a good idea when to trust any signals and when to ignore them.
A good rule of thumb here is to be wary of signals (i.e. red turning to green or vice versa) that occur in the vicinity of the central blue zero line. In chart 1, price is held in a tight range, and the histo' line is chopping about. As a trend trader, you probably wouldn't be a trade at that point. However, compare price and the line from the start of the year to Jan 21st. Price is horizontal, while the histo' line is (gently) falling. A sign of weakness. So, in the event that you were holding a short position, you might hang on because price will break out of the range sooner or later and more profit might be available to you.

3. Not rely on them in isolation.
My view is that they need to be confirmed by something else (e.g. price action or a complementary indicator). I like to use P&F charts, but here I've shown a Heikin-Ashi chart for its graphic simplicity. Waiting until you get a red candle AND a red line (or green candle and green line) will irradicate many false signals. If you'd held on to your notional short trade, you could have held it until around the 12th Feb when the histo' line is green and rising, AND the Heikin-Ashi candles are green.
Cheers,
Tim.

 

[Black Swan]

Thanks all for the value advice, I think I will come out this rules, for super volatile pairs, I will just take profit once the risk to reward is 1:3, for others pairs, I will just stick to the original rules. I will stick to this new rules and let's see how is the result.

In case you all have time, try to check renko chart, it is a very good chart for trend traders.

Regards,
Thian

Just to add a quick tuppeneth Tim and Amit have offered up a lot of good stuff thus far WARNING; how many EAs/systems/ strats.. do you think are out there based on the Eureka moment/epiphany when folk realise " 'ang on a second, when the *MACD lines* cross and the histogram turns from red to green or green to red, price goes up or down...huh-rah, this time next year Rodders!!"...?

You can back test it on any time frame you like and it will make you a zillionaire, endex. However, the reality is that if you take, for example, a 1hr TF you'd have to be in right at the 'b of the bang' on every trade for it to be profitable and exit likewise...moving down the TF's gets interesting..

Example, let's look at UJ this morning on a ten min TF (which I don't operate on, but useful for a comparison)...according to the MACD or histogram change you'd have taken up to 5 trades this morning; only the fifth trade (the current one) would have yielded profit, but even that would have depended on being right in there at cross/colour change...IMO you can only base your trade evaluation on histogram/MACD x based on being in on the second bar on any time frame and that could kill your analysis/profitability..

However, on longer term TFs; 3-4hr it can be a v. good addition to other indicators. Again, looking at UJ on the 4hr, first 2 trades of March may have been losses, and/or you need bigger stop losses to trade that TF, trade 3 bingo...looking good for a short since 8 this morning...looking very good tbh...

 

[timsk]

Yes indeedy, BS is quite right.
Allow me to make clear - albeit belatedly - that my previous post certainly isn't intended as some sort of miracle cure. 'Rodders' shouldn't get too excited about his fortune just yet! It is intended merely as a means of generating a faster (less lagging) signal than the standard macd crossover lines - nothing more.
Tim.

 

[Black Swan]

Yes indeedy, BS is quite right.
Allow me to make clear - albeit belatedly - that my previous post certainly isn't intended as some sort of miracle cure. 'Rodders' shouldn't get too excited about his fortune just yet! It is intended merely as a means of generating a faster (less lagging) signal than the standard macd crossover lines - nothing more.
Tim.

It is the ultimate deadly siren of all indicators, it just looks so bloody obvious..cracking indicator, even shows higher highs, lower lows if you know what to look for, divergence *works* too but you have to wait light years for it to happen...Trading eh? I fooking hate it...this morning I do anyhow, lost close on 3% of one account..that's me out for the day...that hasn't happened for a long long time...

 

[bulkbiz]

Hi BS,

I am not a newbie in forex, my trading system works well in non volatile pairs. Just recently I added in volatile pairs into my trading portfolio and noticed that it doesn't perform well. I have been trading forex for 3 years with my current turtle trading rules and having ROI of 60% every year. What I need in my thread is some value reply like what timsk provide, and please do noticed that I only mentioned about MACD for exit rules. I never mention about super duper MA cross over and wohaa, I earn 30pips in 4 mins, or my EA turn my 1k become 1mil in 2 months. Btw, thanks for your advice.

Regards,
bulkbiz

Just to add a quick tuppeneth Tim and Amit have offered up a lot of good stuff thus far WARNING; how many EAs/systems/ strats.. do you think are out there based on the Eureka moment/epiphany when folk realise " 'ang on a second, when the *MACD lines* cross and the histogram turns from red to green or green to red, price goes up or down...huh-rah, this time next year Rodders!!"...?

You can back test it on any time frame you like and it will make you a zillionaire, endex. However, the reality is that if you take, for example, a 1hr TF you'd have to be in right at the 'b of the bang' on every trade for it to be profitable and exit likewise...moving down the TF's gets interesting..

Example, let's look at UJ this morning on a ten min TF (which I don't operate on, but useful for a comparison)...according to the MACD or histogram change you'd have taken up to 5 trades this morning; only the fifth trade (the current one) would have yielded profit, but even that would have depended on being right in there at cross/colour change...IMO you can only base your trade evaluation on histogram/MACD x based on being in on the second bar on any time frame and that could kill your analysis/profitability..

However, on longer term TFs; 3-4hr it can be a v. good addition to other indicators. Again, looking at UJ on the 4hr, first 2 trades of March may have been losses, and/or you need bigger stop losses to trade that TF, trade 3 bingo...looking good for a short since 8 this morning...looking very good tbh...

 

[Black Swan]

Hi BS,

I am not a newbie in forex, my trading system works well in non volatile pairs. Just recently I added in volatile pairs into my trading portfolio and noticed that it doesn't perform well. I have been trading forex for 3 years with my current turtle trading rules and having ROI of 60% every year. What I need in my thread is some value reply like what timsk provide, and please do noticed that I only mentioned about MACD for exit rules. I never mention about super duper MA cross over and wohaa, I earn 30pips in 4 mins, or my EA turn my 1k become 1mil in 2 months. Btw, thanks for your advice.

Regards,
bulkbiz

Sorry, didnt realise it was *your thread* Bizarre theory; MACD for exit only...still...btw in your 3 year profitable experience analysis, gained using turtles, what's a "non volatile" pair? Is a volatile pair GBP/MXN?

 

[bulkbiz]

Sorry, didnt realise it was *your thread* Bizarre theory; MACD for exit only...still...btw in your 3 year profitable experience analysis, gained using turtles, what's a "non volatile" pair? Is a volatile pair GBP/MXN?

I am not going to answer your question, BS.



(BS=Bull sh*t? No is black swan)

 

[Black Swan]

I am not going to answer your question, BS.



(BS=Bull sh*t? No is black swan)

Sigh... Impressive debut, tell me, as a 3 year 60% return per year *turtle trader* why not just keep on doing, but increase size...? I just find it kinda odd how you're only just *discovering* potential use, or uselessness of the MACD...you're fishing for something...it'll become obvious... crack on..

 

[GladiatorX]

I have heard somewhere or other that markets fall 3 times faster than they rise, so perhaps a falling market has a different characteristic than a rising one.

That'll be helpful for Forex traders won't it

lol

 

[Black Swan]

Yes indeedy, BS is quite right.
Allow me to make clear - albeit belatedly - that my previous post certainly isn't intended as some sort of miracle cure. 'Rodders' shouldn't get too excited about his fortune just yet! It is intended merely as a means of generating a faster (less lagging) signal than the standard macd crossover lines - nothing more.
Tim.

Tim...is that the MACD zero lag indicator you have on those pro real time charts...? :rambo:

 

[bulkbiz]

Sigh... Impressive debut, tell me, as a 3 year 60% return per year *turtle trader* why not just keep on doing, but increase size...? I just find it kinda odd how you're only just *discovering* potential use, or uselessness of the MACD...you're fishing for something...it'll become obvious... crack on..

I am not discovering, I am using it all the while. It just doesn't work on volatile pairs. Btw I don't see any proper advice from "pro" like you :smart:

 

[Black Swan]

I am not discovering, I am using it all the while. It just doesn't work on volatile pairs. Btw I don't see any proper advice from "pro" like you :smart:

hmmm...how can I offer advice when I can't understand what you mean by a volatile pair? I've never traded the Peso, I only trade the seven most traded...