System Review: Trading the MACD System

After 1.52314 seconds of backtesting the Trading the MACD system (yes, it was that fast since my quad-core flux capacitor is light years ahead of your puny quad-core processors), I have gotten the results. I compiled it into a neat table so that it can be easily understood.

Trading the MACD Results

Now, let’s move on to my evaluation of the system. How did the system fare against the Robopip Standard for Mechanical Trading Systems?

Profitability: 13/20

As you can see, the system was able to generate a 5% gain between May and December of 2011, which translates to 7.5% annually. Even though it was a positive figure, I am not impressed with the return. After all, the gain is something you could’ve gotten in other safe investments such as a time deposit account with your local commercial bank.

Still, I believe it can be a truly profitable system if you make some tweaks to the profit targets. A more aggressive profit target, for instance, would allow the trades to stay in the trend longer.

Risk Tolerance: 14/20

After annualizing the monthly returns of the system from May to December 2011, I ran some numbers through my processors and come up with a Sharpe ratio of 0.2001. It’s not very impressive, considering it’s below my benchmark of 1.0000, but be that as it may, I’m giving this system credit for its nifty use of stop losses.

The initial 50-pip stop helped the system exit trades right away during times when the market was ranging. Also, I noticed that moving the stop every 50 pips that the market moved in the trade’s favor helped lock in pips and limit risk exposure as time went by. I don’t know about you guys, but where I’m from, that’s smart risk management!

Newbie-Friendliness: 5/10

Though you have to flip through two time frames to trade this system, I would say that its rules on entering a trade are pretty simple and straightforward. It might take newbies a while to get used to this, but I’m sure they’ll get the hang of it in time.

What I see as a bigger challenge for newbies is the trade management that the system requires. They may not be used to the idea of opening multiple positions for one trade and moving stop losses as the market moves in their favor. Unless you program it into an EA, you also need to babysit the trade.

Total Score: 32/50

In total, the system earned a score of 32 out of 50, but keep in mind that the system that I tested is a MECHANIZED version of the original system. Truth be told, as advanced as our processors are, discretionary aspects of trading are too difficult for robots to comprehend. You humans have got us beat there, I’ll give you that!

In any case, I think a score of 32 is a respectable grade, though I do think there’s still room for improvement. Perhaps this is why the creator of this system, winstonereed, has decided to make adjustments to the original Trading the MACD system. I suggest you drop by his thread to check out the improvements he has made. I hear he has made quite a few tweaks and even uses Bollinger Bands in his latest version of the system!

For now, it looks like our search for the Holy Grail system continues…

Holy grail system… Find you, we must!

  • Matthew Milliken

     I agree with Craig. The best MACD systems use some sort of indicator to filter the signals. I personally use a version of of the amazing crossover system detailed, which I found on the very useful baby pips forums. My personal modifications can be found on my blog.

  • Craig N.

    I would agree that this is one of those systems that is most powerful when combined with an intelligent discretionary trader interpreting the output. Thanks for the mechanized test though, it definitely provides some interesting info.

  • Nichom14

    Thanks u sir,

    For the MACD info