My Experience Using MACD
Seeking Alpha Analyst Since 2009
Summary
- In my experience, using MACD has periods of great profits intermingled with longer periods of whipsaw.
- Because MACD follows a trend, it will never enter a position at a bottom or exit at the top. However, MACD works well for assets that tend to continue trends.
- I try to pick assets where using MACD in the past would have worked well. It has worked quite well for cryptos up until 2021, but has suffered in 2022.
For each stock or crypto that I follow, I look at the 6, 10, 14, 18, 22, 26, 30, 40, 50, 70, 100, 150, 200, 300, 400 day exponential moving averages, and compare the current price to those, and also compare a shorter moving average to each (the shorter average is equal to the longer average minus 1 day.) For those timeframes where historically using MACD would have made money, I look at whether the stock is in an uptrend or a downtrend. The greater the historical disparity for gains when the MACD says to be in versus out, the more weight I put on that timeframe. (For example, a timeframe where all the 'IN' calls made money and all the 'OUT' calls would have lost money if in would get a very high weight.)
I have tried to choose stocks and cryptos that have exhibited significant trending in the past. Most stocks don't quality. Many cryptos do. Stocks which are commodity based seem to have major trending as well.
I update these nearly daily in the comments section, generally about 9pm EST.
A good example of a trending asset is bitcoin which I started trading in 2017. Surprisingly, the MACD algorithms didn't suggest trading that often. However, here is a basic summary:
Started trading bitcoin when they allowed bitcoin futures trading which I thought gave some legitimacy to bitcoin's future. Unfortunately this was near the top but the MACD was clearly positive. MACD got me out sometime in 2018 with a loss. Bitcoin kept going down and was stranded around $3-4K for awhile and they started showing some signs of life in the spring of 2019. Because it was depressed for so much of 2018, it didn't take much of a rise to create an uptrend so I bought in when the uptrend was established in 2019. At the time I expected bitcoin to go back down and give me a small loss, but I knew there was a chance that this was signalling a large rise. As it turns out, the MACD stayed positive throughout 2020 and some of 2021 so I rode it all the way up to $67K, but the MACD clearly portrayed an uptrend then so I didn't get out until it was down to the forties on the way down. Since then there have been about three times that the MACD gave a false positive, putting me in and later out again for a small loss. So, for bitcoin, MACD generated five trades of which four were losers but the overall result was a substantial gain. Following MACD for Ethereum was even better. I have used MACD to trade a few other cryptos, and while I suspect I would have made a lot getting in early, I waited in each case until I thought the crypto wasn't going away so I missed the large gains and lost some money due to 2022 whipsaw. I'm strictly a math person and don't know a lot about the cryptos themselves. Those that really know the crypto world made a lot of money investing in cryptos such as Cardano and Solana early at a point where I was still skeptical of them.
You'll see the same stock names over and over again in these comments where I discuss MACD. CROX seems to follow trends quite well and has been in an uptrend almost the entire second half of the year. As I write this, it's up 5% today when the market is down. Many of the other names you'll see over and over are commodity-based names like AR, UAN, X, BTU. Most stocks have not shown any ability to profit from momentum-based MACD models historically.
Disclosure: I/we have a beneficial long position in the shares of CROX either through stock ownership, options, or other derivatives.
Additional disclosure: I am not a financial advisor and have never had a career or job in finance. This might appear to be financial advice but it's not! Use this information at your own risk.