Ultimate Guide to MACD Trading Strategies and Backtesting Results

The MACD indicator can enhance trading strategies, but it should not be relied upon solely for success.

### The Ultimate Guide to MACD: Strategies, Testing, and Optimal Settings
* 📚 After a week of intensive research on the Moving Average Convergence Divergence (MACD), I discovered many insights **beyond my initial knowledge** of this popular trading indicator.
* 🎥 I watched numerous videos and read countless articles to uncover tips and tricks, ultimately **back-testing the MACD on historical market data** to validate its effectiveness.
* 🔍 The MACD, developed by Gerald Appel in the 1970s, consists of four main components: the **MACD line**, **signal line**, **histogram**, and **zero line**, with default settings of **12 and 26 days** for the exponential moving averages.
* 📈 I tested four common MACD strategies, including **buying when the MACD line crosses above the signal line**, using divergence to **predict market momentum**, trading off **extreme MACD readings**, and employing the MACD as a **trend filter**.
* 💡 However, I removed the divergence strategy due to its subjectivity and found that the MACD often **fails to predict market movements accurately**, as upward or downward momentum can continue despite **weakening signals**.
* 📊 My tests revealed that while the MACD crossover strategy performed reasonably well for the S&P 500, the extreme readings strategy indicated that **high momentum often leads to further momentum**.
* 🔧 The optimal settings for the MACD based on back-testing were found to be **2, 60, and 2** for the daily timeframe, and **30, 57, and 27** for the weekly timeframe, yielding **better returns than a simple buy-and-hold strategy**.
* 📉 Ultimately, while the MACD is a valuable tool, it should be used in **conjunction with other indicators and strategies** for successful trading, and I plan to explore **other indicators in future videos**.

I Tested The MACD - Does It Actually Make Money?

Dedicating my time to giving you the best value possible. My one and only goal is to make you a better trader. Simple as that.

Enjoy!


TradingLab

Extensive research on the MACD indicator was conducted.

Hundreds of videos and articles were reviewed to learn about the MACD.

Backtesting was performed to assess the MACD's effectiveness and optimal settings.

The video aims to provide a comprehensive guide to the MACD.

Explanation of MACD (Moving Average Convergence Divergence), its creator, and purpose.

Description of the four main components of the MACD: MACD line, signal line, histogram, and zero line.

Various MACD strategies were tested to predict market movement.

Four common strategies were selected based on audience input.

Each strategy will be explained and tested on real market data.

Strategy 1: Buy when the MACD line crosses above the signal line (histogram turns green), sell when it crosses below (histogram turns red).

Strategy 2: Identify divergence (price makes higher highs/lows, but MACD doesn't) to predict market reversals.

Strategy 3: Trade based on extreme MACD peaks (high or low) to anticipate momentum shifts.

Strategy 4: Use MACD as a trend filter (higher timeframe MACD histogram indicates trend direction).

Discussion of why the MACD might not always work effectively.

Critique of Strategy 1: Weakening momentum doesn't necessarily signal a trend reversal.

Critique of Strategy 2: Subjectivity in identifying divergences.

Critique of Strategy 3: Extremes can become more extreme; high/low histogram doesn't guarantee reversal.

Strategy 4: Using MACD as a trend filter; comparison with 200 EMA.

Objective evaluation of MACD strategies using statistical data.

Exclusion of divergence strategy due to subjectivity and difficulty in backtesting.

Exclusion of trend filter strategy as it's not a standalone strategy.

Testing remaining strategies (MACD crossover, extreme MACD readings) on S&P 500, gold, and US Dollar Index.

Results of MACD crossover strategy on S&P 500 compared to buy-and-hold.

Results of MACD crossover strategy on Gold and US Dollar Index compared to buy-and-hold.

Results of extreme MACD readings strategy on S&P 500, Gold, and US Dollar Index.

Determining optimal MACD settings through backtesting on the S&P 500.

Backtesting results available on Discord for other markets and assets.

Daily and weekly timeframes used for backtesting optimal settings.

Entry and exit rules: Long when histogram positive, sell when negative.

Testing various setting combinations (2-60 for fast/slow length and signal smoothing).

Optimal settings for daily timeframe: 2, 60, 2; yielded 9.41% average profit per year.

Optimal settings for weekly timeframe: 30, 57, 27; yielded 6.12%.

MACD is a useful indicator but not a guaranteed formula for trading success.

MACD should be used in conjunction with other indicators and trading techniques.

Suggestion for a series of videos on other indicators.

Links to Discord and backtesting tutorial.