The MACD Is Overrated

I read a pretty enlightening article on the MACD today and how this indicator has been elevated to mystical status.  Is this deserving?  According to the author, no.  The MACD is an indicator based on moving averages; that's it.  "In the end, the performance of moving averages and indicators based on moving averages will always be, well, average." I personally use the MACD and I'll admit that I've been guilty of elevating this indicator to mystical status as well.  I predominantly use it to identify divergence between price, but I also use it to identify momentum.  

I've talked in the past about my avoidance of lagging indicators and the author of this article says that if this is the route that you want to go (I do), then here is what your toolbox should and should not be.

Your toolbox if you want to perform technical analysis in a lagging manner:

1. Moving averages
2. MACD
3. Stochastics
4. Parabolic SARs
5. Bollinger Bands 

Your toolbox if you want to know where price "is likely to go next… as often as 80% of the time."

1. Trendlines
2. Pivot Points
3. Candlestick

This article presents far from revolutionary information but it goes against from the norm and states why you would be best served by using something other than the MACD.   That is why I like this article.  There are just so many articles on how to use the MACD to your advantage.  

The author also mentions some candlestick patterns (hammer, star) that when identifying them when price is near pivot points or trend lines, can be more powerful.

Article: http://www.investopedia.com/articles/trading/06/AgainstMACD.asp

Popularity: 8%

Forex Blog : Stochastic Price Reverse Backtesting

I backtested the Stochastic Price Reverse trading system from 2003-2005 for EUR/USD.  If you want to read more about it, go to http://www.wealth-lab.com.

I have graphed the results and you can view them here.
You can view the actual buy/sell signal results here. 

To quickly summarize, if you were to use this trading system, over the last 3 years, your would have been most successful if you used 6,7, or 8 as %K values. 

 

Popularity: 3%

Slow Stochastic indicator

I have to say I am quite surprised from the results of my data crunching yesterday.  I used many different slow stochastic parameters and EUR/USD data from 2004 and 2005.  I will post the results later but if I were to use the slow stochastic as the only indicator for buy and sell signals during the last 2 years, I would consistently be losing money.  I should mention that a buy or a sell is constantly being reversed depending on the crossover so during the simulation, I always have a position. 

This is obviously not a real-world simulation as I would not use 1 indicator to give me a buy/sell signal.  This priliminary test shows more that 1 indicator should never be used alone.  I am going to develop a more complete test plan using the slow stochastic indicator and will post it later.  Off the top of my head, I may establish a minimum or maximum value to sell or buy.  For instance, if a crossover occurred yet the slow stochastic value does not indicate a overbought or oversold condition, don’t enter the position.  Only enter the position if the crossover occurs above 70 or below 30.  

Does anyone have any input on the slow stochastic indicator and what may be the best way to test? 

Popularity: 2%

Backtesting Script and Data Progress

I’ve finished multiple subroutines for calculating Simple Moving Average, Slow Stochastic, and Fast Stochastic.  I’m running the Fast Stochastic test with 2005 data from EUR/USD. 

A virtual sell order will be initiated when %k crosses below %d and a virtual buy order initiated when %k crosses above %d.  

My first test was using Slow Stochastic (5,5,5) and from 2005-01-01 to 2005-11-01, if crossover buy/sell signals were used strictly , your total loss would be 234 PIPS.

I’m going to move the stochastic parameters around and will post more results later. 

Popularity: 3%

Currency Trades made last night

I made 2 trades last night that are currently in negative territory.  Both trades were based on overbought/oversold indicators using MACD, Stochastic, and RSI.  I also based my trades on support and resistance lines.  I’m sticking with these trades and setting wider stops than usual.  Read more to view my trades.

[Read more]

Popularity: 3%

Yen still trading tight

The question is, when is the Yen going to breakout?  I’ve been
watching the Yen for a good week and a half and there is a stalemate
between buyers and sellers:

 

As
I write this, the Yen just hit 115.15 which is the highest it has hit
all year.  It could just be a whipsaw though and that’s what I’m
willing to bet.  The hourly RSI and stochastic are showing
overbought. 

Longer term, I think the technicals still
favor the USD but short-term, the balance will return and the pair will trade in the tight range.

[Read more]

Popularity: 2%