Why You Shouldn't Use The MACD

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About: SPDR S&P 500 Trust ETF (SPY), SH, SSO, VOO, SDS, IVV, SPXU, UPRO, SPXL, RSP, SPXS, RWL-OLD, VFINX, EPS, BXUB, SPLX, SFLA, BXUC, SPUU, SPXE, PPLC, RYARX, SPXN, SPDN, SPXT, SPXV, TALL
by: The Long Road
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The Long Road
Long-term horizon, Growth, long only, Deep Value
Summary

A short article to test the appeal of the MACD indicator, one of the most popular market indicators, from a tactical equity allocation approach.

I show that an MACD strategy not only underperforms significantly, but also that doing the opposite of this indicator (Inverse MACD) yields much better results.

The test object is the S&P 500 Index and the test is on two different time frames: Daily returns and weekly returns.

A further test is done by varying the MACD EMA length to see if there are non-random/non-overfitted settings to be exploited.

Introduction to the MACD and the Data

The MACD, the Moving-Average Convergence Divergence indicator, has been around for more than 45 years. It is a collection of three time series usually calculated from the closing