The Strategic Trader
Detailed Strategy Evaluation

MACD Part 2: Signal Cross (Long Only)

In this article we will explore the viability of trading the 5 minute ES when the MACD crosses the signal line. The signal line is nothing more than a moving average of the MACD values. To start with, we will test a very common strategy (going long when the current MACD  value crosses above the signal line).


Strategy #1
For the first test, we will enter any trade when the MACD crosses above the signal line.

Results: Exit at 5 Bars
A common theme is starting to emerge. Buying on up moves is generally a losing strategy. Buying when MACD crosses above its signal line and then holding for 5 bars is a pretty bad idea. Not a single optimized parameter set was able to turn a profit in this scenario. Winning percentages were decent, but not above the threshold required to be meaningful.


Strategy #2
Buy when the MACD crosses above the signal line and MACD above the zero line

Results: Exit at 5 Bars
Although we are still buying on an up move, the fact that we are above the zero line appears to make a difference. Based on previous testing results related to the zero line, I did not expect the strategy to do well. However, there were quite a few combinations of parameters that were profitable.  The 4,2,2 parameter combination was even able to (slightly) exceed our percent profitable threshold, but fell short of the overall profit goal.


Strategy #3
Buy when the MACD crosses above the signal line and MACD below the zero line

Results: Exit at 5 Bars
Not surprisingly based on the results from Strategy #2 and Strategy #1, this strategy does not perform very well.


Strategy #4
Buy when the MACD crosses below the signal line

Results: Exit at 5 Bars
Some profitable combinations, but no where near significant.


Strategy #5
Buy when the MACD crosses below the signal line and MACD below zero

Results: Exit at 5 Bars
Once again, we come very close to passing our thresholds on percentage and profit, but fall short.


Strategy #6
Buy when the MACD crosses below the signal line and MACD above zero

Results: Exit at 5 Bars
As logic would dictate, because Test #5 performed well, Test#6 did not do so great.

Summary
MACD signal line crosses mostly reinforce the theme that buying after an up move is a losing strategy. However, strategy 2 had an unexpected result. If you buy on signal line crosses and the MACD is above zero, the strategy performs well. In future tests we will need to examine this behavior more closely.

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