Trade Ideas Blog

Try This Swing Strategy: Reversed MACD Crossover System

Feb 21, 2009

Below is the original Trader’s Tips article submitted for the just released February issue of Technical Analysis of Stocks & Commodities 

TRADERS’ TIPS

March Issue

I measure what’s going on, and I adopt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.” Martin Zweig

For this month’s Traders’ Tips, we offer an alternative to Donald Pendergast Jr.’s use of Monte Carlo analysis on a simple MACD crossover system.  While we agree that backtesting is a practical way to obtain trading system test results, we differ that it requires thousands of different iterations across years and years of data.  The most credible backtesting methodologies weigh the most recent results greater than those in the past. In the real trading world as a trader I want to know what’s working now – not what worked well in ’00, ’06, or even most of ’08.  Fortunately we present our backtesting tool, The OddsMaker, and show how (given a strategy or system) your set of trading plan rules can generate high probabilities for winning trades in any market – in this case with Mr. Pendergast’s MACD pattern.

The strategy is based of course on the Trade-Ideas inventory of alerts and filters found in our flagship product, Trade-Ideas PRO.  The trading rules are modeled and backtested in its add-on tool, The OddsMaker.

Here is the strategy based on finding over-extended moves in price:

Like Pendergast’s system we look for stocks within the NASDAQ 100 (which we create as a separate symbol list within Trade-Ideas PRO) exhibiting daily-based momentum as triggered by a MACD.  In Trade-Ideas we call this signal the ‘Running Up or Down confirmed’ Alert.  We also do not use a stop loss for this system.  Unlike Pendergast’s system we apply a slightly different set of trading rules to accommodate our’s and The OddsMaker’s preference for results based on recency.  We enter at the time of the signal (vs. waiting until the next day’s open after the buy signal) and hold the trade until the open 3 days OR until we receive a sell signal (vs. waiting until the next day’s open after the sell signal).  The results speak for themselves for the 3 weeks ending 01/06/2009 (though they will test a trader’s risk appetite): a 53% success rate where average winners are almost 2X as large as average losers.

Provided by:

Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only.  Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Description:  “LONG MACD Running Up” 

Type this string directly into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window) (spaces represent an underscore if typing): 

https://trade-ideas.54solutions.com/View.php?O=100000_1_0&QRUC=5&MaxDNbbo=0.1&MaxSpread=15&MinPrice=5&MinVol=300000&WN=LONG+MACD+Running+Up+HOLD+3d+Open+-+EXIT+RDC+%285%29+-+No+Trades+60m+B4+Close+-+No+SL&SL=8

This strategy also appears on the Trade Ideas Blog: http://marketmovers.blogspot.com/ 

Where 1 alert and 4 filters are used with the following specific settings:

Running Up (confirmed); with a ratio value of 5

Min Price Filter = 5 ($)

Max Spread = 15 (pennies)

Min Distance from Inside Market Filter = 0.1 (%)

Min Daily Volume Filter = 300,000 (shares/day)

The definitions of these indicators appear here: https://trade-ideas.54solutions.com/Help.html. 

OddsMaker Setup

That’s the strategy, but what about the trading rules?  How should the opportunities the strategy finds be traded?  Here is what The OddsMaker tested for the past 3 weeks ending 1/06/2009 given the following trade rules:

On each alert, buy the symbol – go long (price moves up to be a successful trade)

Schedule an exit for the stocks at the open after 3 days

Exit the position if the same symbol triggers a ‘Running Down (confirmed)’ Alert set at the same ratio of 5

Start trading from the open 

Stop new trades 60 minutes before the end of each day’s close 

The OddsMaker summary provides the evidence of how well this strategy and our trading rules did.  The settings are shown here in Figure 2.

  [Image Temp Removed]

The results (last backtested for the 3-week period ending 01/06/2009) are as follows:

  [Image Temp Removed]

Understand these backtest results from The OddsMaker by reading the User’s Manual:  https://trade-ideas.54solutions.com/OddsMaker/Help.html

— by David Aferiat, Managing Partner, Trade Ideas LLC

www.trade-ideas.com, david@trade-ideas.com  

UPDATE:

I took the following trade on Mon 3.9.3009 and exited Thurs 3.12.2009:

http://twitter.com/TradeIdeas/status/1316300273


I took the following trade on Wed. 2.24.2009 and exited Fri. 2.26.2009:

Out this AM on $MRVL $7.82 for +.78 from this swing trade begun on Wed: http://twitter.com/TradeIdeas/status/1253703595