I Tested The MACD - Does It Actually Make Money? | Summary and Q&A

127.8K views
April 18, 2022
by
TradingLab
YouTube video player
I Tested The MACD - Does It Actually Make Money?

TL;DR

This video explores different strategies for using the MACD indicator, backtests them on real market data, and reveals the optimal settings for maximizing profitability.

Install to Summarize YouTube Videos and Get Transcripts

Questions & Answers

Q: How does the MACD indicator work and what are its main components?

The MACD indicator, which stands for Moving Average Convergence Divergence, is made up of four main parts: the MACD line, the signal line, the histogram, and the zero line. The MACD line is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA, while the signal line is a 9-day EMA of the MACD line. The histogram represents the difference between the MACD and signal lines, and the zero line serves as the center of the MACD indicator.

Q: What are the four strategies discussed for using the MACD indicator?

The four strategies explored in the video are: the MACD crossover strategy (buy when MACD line crosses above signal line, sell when it crosses below), the divergence strategy (using MACD to detect weakening momentum and potential trend reversals), the extreme strategy (trading based on extreme MACD readings), and the trend filter strategy (using MACD in conjunction with higher time frame to determine overall market trend).

Q: What were the backtest results for the MACD strategies on the S&P 500, gold, and US dollar index?

The backtest results varied depending on the market and strategy tested. For the S&P 500, the MACD crossover strategy did not outperform buy and hold, while the MACD extreme strategy showed some promise. In the case of gold, the MACD crossover strategy outperformed buy and hold, while the extreme strategy yielded mixed results. For the US dollar index, the short-only MACD strategy performed the best. However, it's important to note that past performance does not guarantee future results.

Q: What are the optimal MACD settings based on the backtests?

The optimal MACD settings varied depending on the time frame and market. For the S&P 500 on the daily time frame, the best settings were 2, 60, and 2. For the S&P 500 on the weekly time frame, the best settings were 30, 57, and 27. These settings achieved higher average profits compared to buy and hold, but it's essential to consider that past performance may not represent future performance.

Q: How should the MACD indicator be used in conjunction with other trading techniques?

The video emphasizes that the MACD indicator should not be relied upon as the sole indicator for trading success. It should be used in conjunction with other indicators, price movements, strategies, and thorough research. Successful trading requires a comprehensive approach that considers multiple factors and doesn't solely rely on any single indicator.

Summary & Key Takeaways

  • The MACD indicator was created in the 1970s by Gerald Appel to measure a market's momentum through the relative strength of two moving averages.

  • The MACD consists of the MACD line, the signal line, the histogram, and the zero line, and its default settings can be customized.

  • The video explores four different strategies for using the MACD: MACD crossover, divergence, trading off extremes, and using it as a trend filter. Backtests are conducted on three markets (S&P 500, gold, and US dollar index) to evaluate their profitability.

Share This Summary 📚

Summarize YouTube Videos and Get Video Transcripts with 1-Click

Download browser extensions on:

Explore More Summaries from TradingLab 📚

Summarize YouTube Videos and Get Video Transcripts with 1-Click

Download browser extensions on: