MACD Crossover Sell Signal

[Funda-Struck]

Hey ASF'ers,

I am considering implementing a sell signal in my trading plan, to sell when the MACD crosses below the signal line.
I believe I may be thrown out too often with this rule however?
Is there a good volume indicator I can implement with this rule, that will help me disregard the macd crossover below the signal line IF the pullback is on low volume?

I would love to test this out in real time, however my first filter is to stay out of the market when XJO is trading below 50 SMA...Yawn!

 

[pixel]

Hey ASF'ers,

I am considering implementing a sell signal in my trading plan, to sell when the MACD crosses below the signal line.
I believe I may be thrown out too often with this rule however?
Is there a good volume indicator I can implement with this rule, that will help me disregard the macd crossover below the signal line IF the pullback is on low volume?

I would love to test this out in real time, however my first filter is to stay out of the market when XJO is trading below 50 SMA...Yawn!

I found the same problem - especially with the parameters: 26, 12, 9 commonly found in literature.
So, I analysed what those MACD lines and bars really mean.
Without going into tedious details, I found the shorter the short period, the better the profits.
3, 13, 7 (more recently replaced by 8) gave me satisfactory results. (Should you want to dig into those "tedious details", check http://rettmer.com.au/TrinityHome/Trinity/MACD slides.pps )

Subsequently, I have come across studies that confirm my general idea; one author is going even a step further, favouring the price itself instead of a 2- or 3-day EMA.
See http://etfhq.com/blog/2013/02/26/macd-test-results/

In my approach, volume plays a subordinate role, although I tend to dismiss stocks that are too thinly traded. I rarely want to lead the market, but prefer to hide among the market movers' trades. In Dollar terms, that means the average daily turnover should be at least ten times my own position size - preferably much higher.

 

[Funda-Struck]

Wow that was deep. Especially for a beginner like me, lol.
I had a play around today and have implemented a cross over the signal line as a sell signal in my plan; but only in the first stage of the trade before break even has been locked in to cut the losses (although by this stage I may have already exited if the price hasn't moved as I anticipated).
After breakeven has been locked in, I think I will disregard the crossover signal to attempt to ride more of the trend.
I am also going to avoid illiquid stocks, I have put in a filter to avoid stocks that don't average at least $100,000 daily.
I'm still going through the "beginners cycle" of constantly changing my plan, but i'm getting closer!

 

[choniev5]

A good indicator would be to understand how MACD works. Try looking for a shorter short-term moving average (12-day) and a longer long-term moving average (26-day). A shorter short-term moving average means good profits. If the MACD line is above signal line, the histogram in the chart is positive, but if it’s below the signal line, it’s negative.

 

[AverageJoe]

I think people should understand how MACD is actually calculated. In the standard 12,26,9 parameter, If I still remember the actual calculation the signal line is the moving average(9) of the spread of the difference between the MA(12) ans MA(26). So the average of that spread determines effectively or the leading signal before you see the MA(12) cross over the MA(26) on a standard 2 MA crossover. Just a more sophisticated MA crossover so there are lagging factors involved to confirm the reversal on the price it is measuring.

If you use a shorter MA parameters in any of the 3 that is fed into the calculation, you run the risk of getting too many false signals. If you use a longer periods of measurement, then the entry signal will be very late. No free lunch. The problem with this indicator is that when you get a buy or sell signal, you are never quite sure if that is the start of the trend or price is just whipsawing and you get many losses as you see buy and sell signals constantly. MACD works effectively only in a trend.

Some will use a combination of MACD with for instance RSI, an oscillator that works well in a ranging price and use a combination to get confirmation. When the trend ensue, RSI will constantly be in over bought/sold which is what you expect so that is the weakness of RSI. Some use this OB/OS to confirm with MACD as a trend sustain.

Personally I have tried these indicators for a long time and it causes more confusion than anything else and works well in hindsight. I don't use any indicators now.

 

[tech/a]

An average crossover particularly a shorter timeframe will see lots of whipsaws
I think the idea of leaving oscillators out of discretionary trading decisions is
Wise. Price and volume action can give an early indication of where price will
Stall and sometimes where it is likely to reverse.

 

[Funda-Struck]

I have come to the decision to completely remove the MACD crossover sell signal from my trading plan... Simply wasn't working for me. In my sim-trading I have just exited 6 losers in a row due to a negative crossover the signal line before I could lock in a B/E stop.
I'm aiming for at least a 50% win rate, so 6 losers in a row is not a good start (even though the main reason for the stops being triggered was because of a volatile earnings week!)
I reckon when I've finally got my plan sorted, I'll add an extra rule to close the market during earnings season!!

 

[Firefly_au]

I have found that the data used for any TA indicator is usually the ultimate source of trading failures intra-day.

Unless the indicator data source is "real time" and non-smoothed they basically often fail. Most multi-day daily charts have the true range of price variance averaged out which often causes the preset values set for stops and profit targets to be set incorrectly. Even when we perceive the multi-day SP trend correctly it often moves counter to the trend enough to hit stop loss triggers, often in the first 10minutes of the day's trading, and just before the SP goes as we predicted for the day.

Unless we pay for timely data, trading well with indicators such as MACD, SMA and RSI is very difficult to do profitably imo.

While I find indicators useful to judge the expected trend I don't find them particularly useful as actual buy or sell signals because they basically accurately tell us the past SP action not the future. Unless we use them to set positions based on probabilities with predetermined stops and targets, they are fairly useless imo...

If trading shares was easy we would all be instant millionaires

 

[tech/a]

I have found that the data used for any TA indicator is usually the ultimate source of trading failures intra-day.
Unless the indicator data source is "real time" and non-smoothed they basically often fail. Most multi-day daily charts have the true range of price variance averaged out which often causes the preset values set for stops and profit targets to be set incorrectly. Even when we perceive the multi-day SP trend correctly it often moves counter to the trend enough to hit stop loss triggers, often in the first 10minutes of the day's trading, and just before the SP goes as we predicted for the day.

Unless we pay for timely data, trading well with indicators such as MACD, SMA and RSI is very difficult to do profitably imo.
While I find indicators useful to judge the expected trend I don't find them particularly useful as actual buy or sell signals because they basically accurately tell us the past SP action not the future. Unless we use them to set positions based on probabilities with predetermined stops and targets, they are fairly useless imo...
If trading shares was easy we would all be instant millionaires

What is this babble?

 

[shulink]

There are many false alert when use MACD crossdown alone. I usually combine it with Candlestick patterns, volume as well as support and resistance, and they work pretty well for me.

 

[AverageJoe]

What is this babble?

Not sure too, didn't understand the part about "realtime data" as opposed to using the closing day data. Any moving average derived indicator will always give a later signal. You 'pay' for that confirmation. However if you catch a particularly strong trend, its strength lies in the way it allows you to ride the trend a lot longer.

 

[Joules MM1]

you had me at

Most multi-day daily charts have the true range of price variance averaged out which often causes the preset values set for stops and profit targets to be set incorrectly......

 

[Joules MM1]

Not sure too, didn't understand the part about "realtime data" as opposed to using the closing day data. Any moving average derived indicator will always give a later signal. You 'pay' for that confirmation. However if you catch a particularly strong trend, its strength lies in the way it allows you to ride the trend a lot longer.

this is an aggressive view

for a balanced view, maybe, you could put up a picture showing that "pay" going in and the "pay" of getting out and the "pay" of being forced out too early, how to know when that's happening, how to ignore the signal, how to know the signal is valid enough to reverse your position ...afterall, even tho there isnt a mirror, there as cost to getting out based on the signal

a ring thru the nose leading the trader around...with a long rope..stick n carrot ?

must be lunch time at honkers island

 

[Boggo]

Using indicators on their own is a bit of a "which came first, the chicken or the egg" process imo.

I have used indicators in Metastock mainly to remove the small whipsaws etc. At the moment I am in the process of transferring and re-writing my scans and explorations to Amibroker.

I still have a bit of tuning to do on the rewrite of my weekly scan but one indicator I have included is the Siroc.
All that it does is disable any random signals while the Siroc is in a "negative" or downward direction with the associated negative crossover. This reduces the number of trades and increases the reliability of the signals that do appear with a resulting overall better outcome with less trades.

To me anyway this is where the use of a simple indicator is a potential advantage an it is possible to use the MACD in a similiar way.

Just my

Two examples below, top half of each pic is without the Siroc, middle is with the Siroc enabled and bottom is the Siroc. (click to expand).

 

[Firefly_au]

Not sure too, didn't understand the part about "realtime data" as opposed to using the closing day data. Any moving average derived indicator will always give a later signal. You 'pay' for that confirmation. However if you catch a particularly strong trend, its strength lies in the way it allows you to ride the trend a lot longer.

Happy to try to clarify it for you

"Realtime data" refers to the fact a many retail trader data sources are delayed sometimes upto 20minutes. Unless fees are paid to get more timely data often price action is all over before it shows up on retailer charts. Basically what this means is many retail traders are operating with an inbuilt disadvantage greater than most, in a market that allows HFT and bots.

Most daily charts use the closing price data which often does not reflect real-time price action intra-day particularly well imo. This effect can be seen quite readily when the hi and lo SP data is also available for analysis. As far as I am aware most multi-day indicators use the daily chart data with this limitation on accuracy. Hence combined with other mathematical averaging that occurs the signals can be delayed to the point of being nearly useless as an actionable buy or sell signal, because they often occur after the price action has occurred. They often only help marginally to preset the Buy and selling triggers on our trading platform unless the SP trend is sustained.

At least that has been my experience.

 

[AverageJoe]

Happy to try to clarify it for you

"Realtime data" refers to the fact a many retail trader data sources are delayed sometimes upto 20minutes. Unless fees are paid to get more timely data often price action is all over before it shows up on retailer charts. Basically what this means is many retail traders are operating with an inbuilt disadvantage greater than most, in a market that allows HFT and bots.

Most daily charts use the closing price data which often does not reflect real-time price action intra-day particularly well imo. This effect can be seen quite readily when the hi and lo SP data is also available for analysis. As far as I am aware most multi-day indicators use the daily chart data with this limitation on accuracy. Hence combined with other mathematical averaging that occurs the signals can be delayed to the point of being nearly useless as an actionable buy or sell signal, because they often occur after the price action has occurred. They often only help marginally to preset the Buy and selling triggers on our trading platform unless the SP trend is sustained.

At least that has been my experience.

I still do not understand how the data will impact the investor looking at the daily chart? Unless you are referring to intra-day signals?

 

[AverageJoe]

this is an aggressive view

for a balanced view, maybe, you could put up a picture showing that "pay" going in and the "pay" of getting out and the "pay" of being forced out too early, how to know when that's happening, how to ignore the signal, how to know the signal is valid enough to reverse your position ...afterall, even tho there isnt a mirror, there as cost to getting out based on the signal

a ring thru the nose leading the trader around...with a long rope..stick n carrot ?

must be lunch time at honkers island

I am just saying there is no free lunch, I did not say MACD is incapable of providing the signals. "Pay" refers to how MACD is derived with 2 moving averages. The signal is obviously more sophisticated than looking at a crossover but whatever the maths is used to derived the signal, the is lagging. I am sure you already know all this.

Regarding "how to know when that's happening, how to ignore the signal, how to know the signal is valid enough to reverse your position", hindsight is the best tool.

I have not used MACD for a long time now but if you can't see what I am referring then pull up a chart or alternately use 2 MA cross over. I just use the humble S/R, simple PA on candlesticks and RR. Nothing magic about it.

 

[Joules MM1]

hindsight is the best tool.

prob a lot more hindsight than foresight with laggards .....true that with a lack of knowledge a trading plan can be made based on these indicia, i've done such a thing, suffice to say the reason is because the more I ask "what if this..?" then the closer i am drawn to price as most traders eventually do....afterall, if everything starts with the price, it ends with price too ....everything else surrounding price is an add-on based on lack of knowledge or lack of data or both and that's not a judgement so much a recognition of which part of the journey a trader is on
the difference is in the time taken to make a decision, enact the decision and then have the courage to retract the decision.....I'm saying the closer that price is transacted at the price and not at the laggard the more likely the trader is to gain courage (eventually called experience) and take the next step to being an effective trader

the bottom line aside from the monetary risk is the large amount of time involved


thanks, AJ

edit .....this is where the utter bollox of discipline comes in.........the distraction..we used to see this stuff all the time.....traders going on a rant about losing discipline......still comes down to lack of knowledge or lack of data....still comes down to intelligent and cognitive logic mixed with courage based-on .....if you have good data youre likely to have "better" courage even if is a little dutchy but if youre drawn out on time with an one-hit-wonder indicator action AND have to have discipline based on a laggard that can have several interpretations then the stuff is stacked against you........

 

[Firefly_au]

I still do not understand how the data will impact the investor looking at the daily chart? Unless you are referring to intra-day signals?

I suppose that is the problem... I am really referring to both because most of my successful ST trades where over several days but the intra-day price action has a larger effect short term. Its a disconnect that became more pronounced while trying to predict future price action using TA indicators derived from delayed and averaged daily data.

Often it can trigger preset buy or sell without the SP trend on the daily charts with their averaged plots of the closing price showing why it happened. Regardless of the chart inaccuracy due to averaging and delay our trades and triggers are based on real-time price action unless our trading platform or broker is also running on delayed data......which is highly unlikely imo.

My experience has been that this occurs with all TA indicators MACD included and it makes them less useful than they should have been in popular theory.

Has anyone here actually used them as preset triggers and made money that way?

 

[tech/a]

Why on earth would you trade intraday without R/T data feed.
Why on earth would you use oscillators to trade intraday!

Why would you trade Aussi stock intraday!

If you can't afford a live feed you shouldn't be trading.