Trading strategy "Average and MACD combo"
In the 14th issue of ForTrader.org we will look at the trading strategy "Average and MACD combo". We will need the MovingAverage indicator, MACD and ADX. The strategy is based on trend trading. The principle of the strategy is based on trying to enter the trend at the right time. The entry point is formed when the price crosses the moving averages and the MACD passes through the zero mark.
Trading strategy algorithm
1. Time period: H1-Daily;
2. instrument: Trending financial instruments;
Volume: 1 lot; (0.2, 0.4, 0.8, 1.0, etc.)
Indicators: MA with a period of 50, MA with a period of 100. MACD and with standard parameters.
A signal to buy
The price is 10 points above the MA indicator with a period of 50 and 100, the MACD is above zero. At the same time for the last five bars MACD before the signal should take value less than zero. The stop order is set at the minimum for the last five bars.
Signal to sell
Price is lower MA indicator with a period of 50 and 100 by 10 points, the MACD is below zero. At the same time for the last five bars MACD before the signal must take a value above zero. The stop order is set at the maximum for the last five bars.
Position management
After the signal appears, an order opens in whole lot.
The first target is set at the level of the doubled stop order, when the target is reached half of the position is closed. The stop order is transferred to Breakeven.
Closing a position:
The open position is completely closed by a stop order, or the remaining half of the position is closed when the price crosses the 50-period average from top to bottom by 10 pips for purchases and the price crosses the 50-period average from bottom to top by 10 pips for sales.
Strategy testing
Автор стратегии рекомендует совершать сделки на трендовых финансовых инструментах на периодах от H1 до дневного графика. Т.к. автор и советует, возьмем для исследования самую трендовую валютную пару на текущий момент – EURHKD и дневной график. Размер лота для торговли 0,2. Начальный депозит $10 000.
Having tested the above rules from 1999.07.27 to 2007, we obtained the following results (According to opening prices):
- Net profit -559.11
- Maximum drawdown 5452.53 (49.42%)
- Total transactions 39
- Continuous Loss 2
Probably, the author of this strategy was too optimistic about the effectiveness of this strategy. If we open the graph of the currency pair EURHKD, we see how the strategy passed good trend movements and exits were too early. In our opinion, trading by ordinary line crossover would give a better result here. But, nevertheless, as usual we will try to turn the situation for the better and try to find the best strategy parameters to work on this currency pair.
Let's describe the parameters of the Expert Advisor:
- FastEMA, SlowEMA - MACD indicator settings;
- Predel - the number of bars for counting the MACD histogram exit beyond the zero mark;
- SMA1, SMA2 - moving average periods;
- Otstup - the price indent after which the trade is entered;
- Stoplossbarr - the number of bars for which the stop order is calculated;
- Pprofitum - multiplication factor for calculating the profit level;
- enable - enables the ADX filter. 0 - off, 1 - on;
- periodADX - the period of the ADX indicator.
We chose the following parameters:
- FastEMA=39
- SlowEMA=33
- predel=3
- SMA1=10 SMA2=10
- otstup=81
- stoplossbars=86
- pprofitum=2
- enable=0
- periodADX=14
We got the following result:
- Net profit 27897.09
- Maximum drawdown 3603.11 (19.03%)
- There are 6 deals in total
- Continuous loss 0
The most optimal result получился с меньшим количеством сделок и удалением одной из линей средней. Как видим, периоды у них стали одинаковые, это говорит о том, что одна из линий – лишняя, она является ключевым фактором, вызывающим ухудшение характеристик стратегии. Как видим, также было уменьшено количество допускаемых баров до появления сигнала по MACD – параметр predel=3. Снижение периода средних в 10 раз – это следствие запаздывания средних с параметром 100, которое также вызывало негативное воздействие на слежение за трендом. Значительно увеличился показатель расчета stop orderNow instead of 5 bars the stop is calculated on 86 bars, indicating that the strategy needs to reconsider the size of the stop order. Having thus moved apart the Stoplossbarr parameter, the Expert Advisor only identified local minimums and maximums, and set stop orders at these levels.
Let's check the stability of the strategy results for the future period: from 2007.01.11 to the current time (the selection of optimal parameters in this area was not performed).
The test for the future showed good results. Several more positive deals were made. Net profit for the whole period increased to 37485.88. The system drawdown did not increase and was 3603.20 (19.03%)
To summarize
So, the strategy investigated by ForTrader.org magazine did not show itself in the best light when tested. The author also described the possibility of using the ADX momentum check as an entry filter.
As we have repeatedly seen, there can be no universal parameters for indicator-based strategies. Every currency pair has its own technical component and its own unique price character. We recommend you to study the strategy thoroughly before using it in your trading account. Best wishes, your ForTrader.org.