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As there has been a lot of interest recently in the 4MACD strategy, I would
like to share a few ideas for pepping it up a bit. This is based upon my
own methodology so any differences of opinion with the following will be A
Good Thing ;-).
With any trend following system, it is not a good idea to use the same
signal to exit as you used to enter. The idea is that you delay entry until
you are reasonably sure that a trend is established but exit at the first
sign of trouble. Therefore, I suggest that you could try exiting using,
say, the ADX rather than waiting for the slower MACD crossover signal.
Personally, I also find the ADX to be a little on the slow side so I favour
using a change of direction in the +DI to get me out of a long trade and a
change of direction in the -DI to get me out of a short trade.
Although there is a certain amount of trend detection inherent in the MACD
crossover system, the vanilla version gets you into the trade too soon and,
therefore, you are likely to get whipsawed quite often. I suggest the
addition of a trend detecting indicator which will delay your entry but put
the odds of the trend continuing in your favour. Different indicators are
more suitable to different instruments so you could experiment with using
the ADX being above a certain level (or just use the DI indicators which
are components of the ADX) and, one that I like a lot, Bollinger Band
Width. When a stock is in a range (just when you don't want to be getting
in), the BB Width reading will be low. Watch for the breakout.
An even better trending indicator, in my opinion, is a combination of the
LR Slope and the R2. Both indicators are described pretty well in the
Metastock manual but, in a nutshell, for a long trade, you are looking for
the LR Slope to be nicely positive ( >15?? ) and for a short trade, you
are looking for the LR Slope to be negative ( < -15?? ). In BOTH cases, you
are looking for a positive R2 because the R2 basically indicates how far
you can trust the LR Slope. So, if you are using, say, a seven period LR
slope, look for a nice, fat > 45?? R2 for confirmation.
The Linear Regression indicators will radically reduce the number of
signals that you will receive. This suits me fine as I would rather make
fifty bucks from three trades than a hundred bucks from ten trades.
Anyway, I hope that you will find something useful here.
Regards,
Kevin
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