# MACD + Histograms/Twiggs/ROC



## Rusty99 (8 January 2009)

I am a relative newcomer and I have been using a system which uses MACD crossovers + price/volume changes to search for stock. I then use a chart that includes MACD + histogram and Twiggs Money Flow + ROC to choose when to buy and sell. [Twiggs is a modified Chaikin Money Flow]. The signals are a simultaneous rise in Twiggs and ROC + a change in histogram trend (or MACD crossover) for Buy Signal and simultaneous Falls + change in histogram trend for the sell signal. (See chart) I would be interested in any comments you may have on this system. The MACD crossover is generally too late as a signal - hence the use of the histogram trend.

Multicollinearity is reduced with this system as:-
ROC(price) is a momentum indicator
MACD is a trend indicator
Twiggs Money Flow is a Volume Indicator

The system is not mechanical but requires interpretation using the top display.

I use a filter (MACD + Volume and Price changes) to select potential stocks and then use the display to narrow down the choice and further information to buy and sell. It is a short-term system (5 to 10 days or more).


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## Cartman (10 January 2009)

Rusty99 said:


> I am a relative newcomer and I have been using a system which uses MACD crossovers + price/volume changes to search for stock. I then use a chart that includes MACD + histogram and Twiggs Money Flow + ROC to choose when to buy and sell. [Twiggs is a modified Chaikin Money Flow]. The signals are a simultaneous rise in Twiggs and ROC + a change in histogram trend (or MACD crossover) for Buy Signal and simultaneous Falls + change in histogram trend for the sell signal. (See chart) I would be interested in any comments you may have on this system. The MACD crossover is generally too late as a signal - hence the use of the histogram trend.
> 
> Multicollinearity is reduced with this system as:-
> ROC(price) is a momentum indicator
> ...




interesting for a first post Rusty  ----- r u trying to selling the system ?? 

ps   i can make it simpler for ya !!


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## It's Snake Pliskin (10 January 2009)

Rusty99 said:


> I am a relative newcomer and I have been using a system which uses MACD crossovers + price/volume changes to search for stock. I then use a chart that includes MACD + histogram and Twiggs Money Flow + ROC to choose when to buy and sell. [Twiggs is a modified Chaikin Money Flow]. The signals are a simultaneous rise in Twiggs and ROC + a change in histogram trend (or MACD crossover) for Buy Signal and simultaneous Falls + change in histogram trend for the sell signal. (See chart) I would be interested in any comments you may have on this system. The MACD crossover is generally too late as a signal - hence the use of the histogram trend.
> 
> Multicollinearity is reduced with this system as:-
> ROC(price) is a momentum indicator
> ...



There is one point you don't seem to have not addressed.
How do you discern risk and reward from the system?


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## It's Snake Pliskin (10 January 2009)

It's Snake Pliskin said:


> There is one point you don't seem to have not addressed.
> How do you discern risk and reward from the system?



Error,

I mean *"you don't seem to have addressed"*.


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## Rusty99 (11 January 2009)

Thanks for the replies.

No I am not trying to sell the system - it is all there anyway!

I would like to know how to make it simpler.

Re: "How do you discern risk and reward from the system?"

This is done by looking at the history of the stock, assuming that future patterns will follow similar trends. I use a stop loss and sell early in the fall phase. There are some false buy signals, when the stock does not rise as expected, but the stop loss minimises the losses. The expected rewards are predicted form the history of the stock and the past gains over a 5-10 day period (depending on the stock). Like any system - you win some and lose some and the higher the risk taken the higher the potential rewards. I am not a full-time trader and I currently use a conservative approach.

I have looked at making it automatic, but there is too much to lose in terms of examining the pattern of the individual stock and info about the company.

I use a stock filter to pre-select potential stocks which produces about 40-100 stocks on ASX each day, and then examine them individually before deciding which ones to buy. I also examine stocks from other sources and use the same chart set to assess their potential. I similarly examine the chart set patterns for stocks in my portfolio to decide when to sell.

As a relative newbie, trading for 18 months, my aim with the post is to get feed-back on the system's potential, the relationhips with other systems and how to improve it, etc.

Cheers


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## Cartman (11 January 2009)

Rusty99 said:


> MACD crossover is generally too late as a signal - hence the use of the histogram trend.





Rusty, the MACD cross will more likely get u into a trade too EARLY ---  but i know what u mean ---

wait for the next retest of the previous high/low


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## tech/a (11 January 2009)

Whipsaws all over the place.
Only chance it would have of being profitable is if there was a strong bull market where most everything works.
Indicator based methods just get slaughtered on a chart like the one you have shown and in a market such as the one we have currently---and into the forseeable future.
I also note parabolic SAR on your chart but no mention of use.

Sorry but its the sort of "L" platers use of technical analysis,you very often see.
Has no hope of being profitable.


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## Rusty99 (11 January 2009)

tech/a - see ya in 2010 ! 

Meanwhile I'll have a go using indicators in a market that is showing signs of recovery and stabilising.

Cheers


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## tech/a (11 January 2009)

> my aim with the post is to get feed-back on the system's potential, the relationhips with other systems and how to improve it,




So your aim has changed in a few hrs then?



> I'll have a go using indicators in a market that is showing signs of recovery and stabilising.


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## Rusty99 (11 January 2009)

Nothing has changed. The time to make money is when the market has bottomed out and starts to rise again, though the market is likely to be unstable. I've been out of the market for several months due to the crash and I am trying to develop / find a system that works during the early recovery phase - for short term trades 5 -10 days. Volatility has declined and there should be good signals about the potential recovery in February. I'm looking for suggested improvements with my system which works for me.

Cheers,


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## It's Snake Pliskin (13 January 2009)

Rusty99 said:


> Re: "How do you discern risk and reward from the system?"
> 
> This is done by looking at the history of the stock, assuming that future patterns will follow similar trends. I use a stop loss and sell early in the fall phase. There are some false buy signals, when the stock does not rise as expected, but the stop loss minimises the losses. The expected rewards are predicted form the history of the stock and the past gains over a 5-10 day period (depending on the stock). Like any system - you win some and lose some and the higher the risk taken the higher the potential rewards. I am not a full-time trader and I currently use a conservative approach.
> 
> Cheers




Jibberish. Not clear in the slightest.


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## Rusty99 (13 January 2009)

It's Snake Pliskin said:


> Jibberish. Not clear in the slightest.




It is working! Despite the current volatility. 5-10 days seems to be the go.

Cheers


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## Rusty99 (13 January 2009)

It's Snake Pliskin said:


> Jibberish. Not clear in the slightest.




Its 'Gibberish' actually !


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## GumbyLearner (13 January 2009)

Rusty99 said:


> Its 'Gibberish' actually !




Gibberish. I dont place cash on gibberish or charts, I believe in people and what they want to buy!

Best thing to do RUSTY over the next 24 nonths is buy some OIL/GOLD!

WHY???

People need them! 

Well in truth they dont need gold, but when the currency they are using is debased..U can work out the rest!!!


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## Rusty99 (13 January 2009)

Its a Worry!


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## It's Snake Pliskin (14 January 2009)

Rusty99 said:


> It is working! Despite the current volatility. 5-10 days seems to be the go.
> 
> Cheers



Over how many trades have you determined it is working?


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## Rusty99 (14 January 2009)

It's Snake Pliskin said:


> Over how many trades have you determined it is working?




I have been using the system every trading day for 18 months (5-10 stock portfolio on average - swing trading) - though I pulled the plug in October 2008 and plugged back in January 2009. On average I made 2-4 trades a day => about 1200 trades.


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## It's Snake Pliskin (14 January 2009)

Rusty99 said:


> I have been using the system every trading day for 18 months (5-10 stock portfolio on average - swing trading) - though I pulled the plug in October 2008 and plugged back in January 2009. On average I made 2-4 trades a day => about 1200 trades.



Ok just interested, What is your win loss percentage, your positive expectancy and drawdown?


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## Rusty99 (14 January 2009)

It's Snake Pliskin said:


> Ok just interested, What is your win loss percentage, your positive expectancy and drawdown?




My average success rate is around 75% (3 to 4 wins to every loss). I have had returns of 2-3 % per day over the last 3 days on the ASX, which has been generally declining. I lost quite a lot in shedding stock during the recent meltdown. I am acually interested in comments, suggestions and potential improvements on the system rather than discussions about my trading outcomes which depend on how I use the information from the system (risks, judgement, stops etc.)


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## Cartman (14 January 2009)

Rusty99 said:


> I am acually interested in comments, suggestions and potential improvements on the system rather than discussions about my trading outcomes







Cartman said:


> the MACD cross will more likely get u into a trade too EARLY ---  *wait for the next retest of the previous high/low*




have u done any testing to see whether this improves the likely outcome of yr trades


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## Rusty99 (14 January 2009)

Cartman said:


> have u done any testing to see whether this improves the likely outcome of yr trades




I have not done formal testing – only looked at many many chart patters. The image shows what I am talking about. In the current volatile market I am looing at 5 day swing trades. The MACD cross over signals are shown as Blue Lines labelled “c”. You can see that if you wait for the cross over you enter the market too late to benefit from the rise. My but strategy is to look for major simultaneous up-turns (after a down-turn) in the Twiggs and ROC that corresponds with a change in a trend for the MACD histogram. This are marked with Green Lines and labelled “t”. The trend can be a decline after a peak or a crossing over of the zero line. Examples 2 and 3 are strong. For 1 I would probably have waited until the strong upturn corresponding with the cross-over. Example 4 is also weak. In less volatile markets you can afford to wait longer for the cross-over. There appears to be relatively few false cases where the three signals occurred simultaneously and the stock price fell, but the rise may be very short-lived. This system works for me – but I emphasise that I examine a lot of other information before deciding to buy. I use a trailing stop and/or a simultaneous fall in Twiggs and ROC and a change in MACD histogram trend as the sell signal. Why not set it up and do some testing and see how it goes? I’d love to get some feedback.


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## rub92me (14 January 2009)

Rusty99 said:


> Thanks for the replies.
> I would like to know how to make it simpler.






Rusty99 said:


> My average success rate is around 75% (3 to 4 wins to every loss). I have had returns of 2-3 % per day over the last 3 days on the ASX, which has been generally declining. I lost quite a lot in shedding stock during the recent meltdown. I am acually interested in comments, suggestions and potential improvements on the system rather than discussions about my trading outcomes which depend on how I use the information from the system (risks, judgement, stops etc.)



See, the problem is that you have already received feedback and you have ignored it. If your results are as good as claimed, why on earth would you want to change a thing? Just tighten up your risk management, read up on position sizing and you're done.


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## Cartman (14 January 2009)

Rusty99 said:


> I have not done formal testing – only looked at many many chart patters.  Why not set it up and do some testing and see how it goes? I’d love to get some feedback.




Rusty --- if it works for u  thats all that matters ----- what yr showing is a counter trend system  which means u have a much smaller window of opportunity to get yr entries and exits right ---- i also like C/T trades but if yr holding overnight for a few days, sooner or later yr gona get hit with a nasty gap open

short trades would have been less risky for most of the chart ----- lower lows/highs ---- until the last higher low ----- trend is now unclear --- of course none of that matters if yr familiar with the stock/instrument and how it behaves --

id personally be wary trading stocks long when the MACD is in negative territory even if it looks like crossing ---- risky business ---

wait for the MACD cross, and buy the low of the next cycle IF the low is higher than the previous low ---- much less risky cause yr punting with the trend    ---- good luck with it

ps on this chart there would have been no long trades with the above scenario  except maybe 4 --- but that was still risky cause we are still unsure whether the downtrend has reversed --  there were a cupla good shorts though!!


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## It's Snake Pliskin (15 January 2009)

Rusty,
Could you give me some rational for your choice of indicators? Why twiggs, roc and macd? Have you looked at the bull power and  bear power indicators, or other indicators?


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## Rusty99 (15 January 2009)

It's Snake Pliskin said:


> Rusty,
> Could you give me some rational for your choice of indicators? Why twiggs, roc and macd? Have you looked at the bull power and  bear power indicators, or other indicators?




Thanks for your suggestion I’ll have another look at bull power and bear power indicators.

To state the obvious, after 3 years of research looking at all sorts of indictors the set I use works for the swing trading I am interested in. Basically what I am trying to do is hitch a ride on a price rise that has a reasonable chance of continuing long enough for me to make a profit. Twiggs Money Flow (Chaikin Money Flow) is based on detecting buying support, which is normally signalled by an increased volume and frequent closes in the top half of the daily range. ROC is a simple indicator of the relationship between the present price and the one that existed n-time periods ago. ROC increases when the price is trend up. MACD is a trend following indicator which signals the likely start and end of longer term price swing cycles. The system is used to pick stocks that appear to have entered a new upward trend cycle, with significant and sustained increases in BOTH price and volume. The indicators are relatively simple and easy to understand in relation to the basic stock data.


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## Rusty99 (15 January 2009)

Cartman said:


> id personally be wary trading stocks long when the MACD is in negative territory even if it looks like crossing ---- risky business ---
> 
> wait for the MACD cross, and buy the low of the next cycle IF the low is higher than the previous low ---- much less risky cause yr punting with the trend    ---- good luck with it
> 
> ps on this chart there would have been no long trades with the above scenario  except maybe 4 --- but that was still risky cause we are still unsure whether the downtrend has reversed --  there were a cupla good shorts though!!




Thanks for the advice Cartman
The system is not mechanical and I carefully pick from a list of likely 'rides' using the chart pattern and other company information.
I am currently riding on number 4 ! 
It is a difficult times to rely on longer term trends! I agree this means higher risk with 'MACD in negative territory' and buying when 'the low is not higher than the previous low', but these are volatile times! 
I'd rather stay trading despite the volatility if the system still works, than buy gold and wait 2 years.
Cheers - February should be interesting!


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## Cartman (15 January 2009)

Rusty99 said:


> Thanks for the advice Cartman
> The system is not mechanical and I carefully pick from a list of likely 'rides' using the chart pattern and other company information.
> I am currently riding on number 4 !




nah not trying to give advice --- like i said if u know yr instrument there is no prob trading against the trend ----- its prob more the fact that u r holding for a few days (which is a long time in my world) ----- with C/T trading that adds a bit more risk ------ obviously yr choosy about yr stock picks, cause its working for u ----- if it aint broke etc ...


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