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Equity Trading Systems
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This page is part of the larger document A View on Technical Indicators and Trading Systems
Moving Average Convergence/Divergence (MACD) Trading Systems As discussed above, there are two main ways of using the MACD indicator in a trading system--to gauge trend and momentum. The first leads to the following system: System 5: Buy when MACD crosses above 0, Sell when MACD crosses below 0 Avg profit per trade (% gross) 0.3 Avg days held 28.3 Profitable trades (%)* 24.1 Avg drawdown (%) 2.3 Max drawdown (%) 25.2 Avg profit/avg drawdown 0.1This system is not profitable on average, and is characterized by many small losers (a out 76% of the trades. The system does keep drawdowns fairly low at only 2.3% on average. Basing trading in the direction of momentum using MADC crossovers yields the following system. System 6: Buy when MACD crosses over its signal line, Sell when MACD crosses below its signal line Avg profit per trade (% gross) 0.2 Avg days held 14.5 Profitable trades (%)* 30.1 Avg drawdown (%) 2.2 Max drawdown (%) 53.2 Avg profit/avg drawdown 0.1This system is also unprofitable. Note that it trades faster than the one above, and 30% of the trades are profitable. It has a similar average drawdown as the prior MACD system. Thus the simple trend/momentum following systems illustrated here are insufficient for actual trading.
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