stevehopwoodforex.com • Jem's Daily MACD Reversal Strategy

Author:

garyfritz [ Mon Mar 04, 2013 12:01 am ]

Post subject:

Re: Jem's Daily MACD Reversal Strategy

OK Jem, I've got a basic backtest running. I couldn't do anything really fancy (like optimizing the parameters across all pairs) because of TS limitations. This process takes a whole lot of manual steps so I only tested a few cases.

I tested it on 5 years of data, trading 0.1 lot. Based on your rules and 30pip backtest, only 9 of 27 pairs were profitable over the 5 year period. 20 pairs were profitable in the last year. If you traded all 27 pairs, you would have gone over $50k into the red, but with a good run at the end you would have made over $13k in the last year:

SL30.gif

Two suggestions:

30 pips is too tight. Your win rate is low and your average trade size is small. Something along the lines of 150-175 pips works a lot better. Or, better, use ATR-based SL. 1*ATR works OK, 3-5 * ATR works better. Depending on the pair, your profits can double, win% can almost triple, average trade is 2-4x larger. If you size your position based on initial risk, the smaller SL might make more profit, but I think it's easier / more fun to trade something that wins 3x more often and has larger average trades.
Whipsaws will kill you. You want to avoid false reversals that get whipsawed for a loss. I can think of two simple ways to do this: 1) set a reversal stop when MACD turns, rather than reversing immediately, or 2) reverse when the MACD stays steady in its new direction for N candles. The larger N is, the more you miss out on when the market turns, but the less often you get whipsawed. It seems to work best if you wait 6-8 candles!

Running with 3*ATR SL and reversing after 7 candles, in 5 years you lost $12k, and in the last year you made $9k:

SL3rev7.gif

Hm. That doesn't look much better, does it.

I think these parameters don't hold up well across all pairs, and in particular the reverse-after-7 might hurt more than it helps. Setting a reversal stop might work better but I didn't get that working yet.

I tried some simple "only trade the ones that have been working lately" filters and those didn't help at all. From what I can see, the results are kind of random, not in long streaks of wins or losses.

So: from this test at least, it looks like your approach has been working pretty well since the middle of 2011. Before that, it lost a ton. You could trade it as is, and just watch out for it to die again.

I found one thing that worked really well: trade only JPY.

Looking at the profits for all pairs, xxxJPY pairs were consistently the most profitable. (Except USDJPY, for some reason.) So here's the result of trading with 3*ATR SL, 10*ATR PT (optional but it helps), reversing as soon as MACD changes color, and trading all 27 pairs (blue) or just xxxJPY pairs (red):

JPYonly.gif

So that starts to get interesting! If you trade only xxxJPY, you have 1/4 as many charts to follow, make 1/4 as many trades, and the profits are a lot more consistent. Except the last half of 2011, you do about as well as, or a lot better than, trading all 27 pairs. You could trade 4x bigger size and make a LOT more profit with about the same risk.

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Author:	glabbeek [ Sun Mar 03, 2013 4:59 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
garyfritz wrote: glabbeek wrote:For your money management the risk should not exceed 2% to 3% of your equity. This is a proven value for traders with a capital up to about 50.000 US. Appropriate risk level depends on the strategy performance (basically higher average trade profit can support higher risk levels) and personal risk tolerance. 2-3% is probably safe for any good profitable strategy. I need to get my Tradestation backtest working so I can calculate a good risk level. I think you are right about this. I must say that Forex is a totally different ballpark compared to stocks and I'm still in the dark sometimes. Empty4 is a ##%^*## when it comes to testing and that makes it hard to convince people to stick to a system and stop perfecting it on a daily basis.

Author:	garyfritz [ Sun Mar 03, 2013 6:15 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
I agree that Forex is different to stocks (and I definitely agree Empty4 is a ##%^*## ) but as long as the trading history is consistent, the math doesn't care whether you're trading stocks, forex, or tulips. Look at your trade history, calculate an appropriate risk level (I use Kelly calculations), and size your trade so you risk the appropriate amount.

Author:	glabbeek [ Sun Mar 03, 2013 7:03 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
I've dished Kelly a long time ago, I just could not get it to produce steady gains. I've been working with fixed risk ever since. Maybe Kelly was to hard for me to comprehend

Author:	garyfritz [ Sun Mar 03, 2013 8:08 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
Using fixed risk is fine. But pulling a random risk% out of thin air isn't a very sound approach. You might be risking too much for your strategy, or you might be leaving a lot of money on the table. You can calculate the Kelly and get an idea for a "reasonable" range of fixed risk.

Author:	bgood [ Mon Mar 04, 2013 2:21 am ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
In looking over the MPTM I'm wondering if everything is set to default or do I input parameters, ie, GMT offset? Any other parameters that need customizing?

Author:	Lifesys [ Mon Mar 04, 2013 8:12 am ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
I realise now my MutiIndicator (is) was useless Mondays for Doji & MACD change, on non-NY-close synched charts ie GP, as it is set for buffer (1) & (2) which means every Monday, all pairs show 'D1InSidebars'. Sorry Jeremy. [EDIT : Adjusted for "Sunday candle" people .] That never made sense to me & won't trade live on such accounts. Monday morn., on Axitrader, JDMRS (for short) showed 10 (of 30). 4 Buy pairs & 6 Sell which I put in DDE trader and so far, 10 hrs later 0800UTC. 7 have failed (<-30pip) and remaining 3 are up +40pip, net -140pips, but 1 good pair can make up deficit. Will try - - no trade Monday ["Sunday candle" gives poor indication anyway] - no trade if H4 ADX or D1 TMA Slope opposing ie retrace. - cautious trade if 2nd color change in 4 candles - otherwise open every indicated pair in available list, incl. commodities. I traded 2nd candle change HeikenAshiSmoothed and know you come out ahead if you do not pick and choose pairs but follow rules. Idea is worth a serious try Jeremy. Thanks. EDIT : Changed to be adjustable for non-NY-close candles. Updated Page 2 Paul

Author:	Jemook [ Mon Mar 04, 2013 8:25 am ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
There's some real good posts in here and I want to get back to all of you individually but flat out Global Prime'ing.. Will write back to each of you as soon as I have a spare second. Thanks, love discussing this stuff with you because you're all geniuses!

Author:	unionnone [ Mon Mar 04, 2013 12:20 pm ]
Post subject:	Re: Jem's Daily MACD Reversal Strategy
nice one jemook!!!

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