Lo and behold, dear humans! I’ve got the grades for MACD(addy) Divergence System based on my framework for mechanical systems. But before we get to that, I must require you to read these posts first:
And now, here are the grades!
For the 12-month backtesting period until May 2014, the system was able to generate close to a 6% gain when applied to EUR/USD’s 4-hour time frame. For the forward test results, it chalked up a 0.82% gain using the 4-hour chart and a 0.55% gain using the 1-hour chart for the month of June. I’m not gonna lie, but I’ve seen far more impressive results from other systems.
What’s impressive though is that its win ratio has been greater than 50% for both backtesting and forward testing, with a 100% win rate on the 4-hour chart forward test last month. Not bad, huh?
Risk Tolerance: 16/20
As with the previous system I reviewed (The Trend is Your Friend), the risk management rules are pretty straightforward, as the system owner specified that trades can be exited once stochastic reaches the overbought or oversold levels. However, the original rules state that the stop can be set at nearby support or resistance levels and I thought it of tweaking it to have a less subjective pre-defined 100-pip stop.
Drawdowns haven’t been so bad in both the backtests and forward tests, as I haven’t seen consecutive losses and the maximum drawdown has been limited to 1%.
Although the rules are easy to understand, spotting divergences and picking the valid ones can get a little tricky for newbies. Heck, I had to adjust my own lenses just to make sure price and MACD meet the 9 Rules for Trading Divergences before chalking it up as a buy or sell signal!
Total Score: 39/50
All in all, the MACD(addy) Divergence system fared pretty well with a total score of 39/50. I did get a few comments from users saying that they use this system and that they’ve gotten pretty decent results. Any tweaks you’d like to share?
Make sure you keep me posted on how your system testing results turn out, as the search for the Holy Grail continues!