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5 MACD Strategy MISTAKES you should avoid in Trading Forex Stocks... or... - Forex Day Trading - YouTube
Channel: TRADING RUSH
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Since the first MACD video on the Trading
Rush聽channel, many have emailed me about
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how they are getting win rates as high as
68 percent. Many are getting multiple green
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days in a row, but then there are few people
who are only getting win rates around 50 to
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55 percent. First of all, you are getting
more than 50 percent win rate with a reward
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to risk ratio of 1.5 to 1, there are people
who spend a lot of money on courses to get
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win rates like that. If you do the math, a
55 percent win rate with a 1.5 to 1 reward
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ratio, is a really good win rate to make money
in trading. Of course it is not good as many
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of you guys are getting, and not even close
to the win rate we saw in the MACD strategy
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video. So I compared the MACD聽setups with
50 percent win rates, with setups of the people
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getting around 60 to 65 percent win rates,
and found 5 common mistakes in almost all
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the 50 percent setups, that are keeping them
away from making more money in trading.
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The first mistake the聽50 percent win rate
setups made, that people with more than聽60
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percent win rates avoided, was not following
all the MACD strategy聽rules. In the MACD
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video and the videos after that, I clearly
said that while backtesting,聽I didn't take
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trades that had confusing or bad聽entries,
and you should avoid them as well. This rule
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was ignored by couple of people. I have taken
many trades with the MACD strategy in the
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liive markets over the years, when I made
the MACD strategy video, which was also the
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first video on this channel, I explained the
strategy and added few rules that I personally
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found useful. Over the years, I noticed some
downsides and advantages of the MACD strategy.
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So when I made that video, I added my personal聽rules
to make the MACD strategy even more effective.
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One of those rules that was implied聽in that
video was not taking trades when price has
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already made a big move in your favor.
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One of the drawbacks of the MACD strategy,
is that price sometimes makes a big move exactly
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on the MACD candle,聽or one or two candles
before it.
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For example, this is one of the trades I shared
with the wonderful聽Patrons who support the
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Trading Rush on Patreon. In this trading setup,
I did other analysis using multiple timeframes聽and
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was waiting for the MACD to give a crossover.
But exactly on the MACD signal candle, the
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price made a big move in my favor. This makes
the signal invalid, and I didn't take it because
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the price already made the move I was anticipating.
Furthermore, even if I had taken the entry
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after this big candle, the stoploss would
have been so big, that price would have had
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to travel a lot of distance to get a decent
reward to risk ratio. In other words, the
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probability of these setups are really low,
and that's exactly why I added the "don't
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take when entry looks confusing rule", and
ignored the trades that had way too big stoplosses
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and other similar issues,聽and added 0 in
profit when the entry was confusing while
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backtesting.
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The second聽mistake I see a lot of people
make, is using a bot or script to test the
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strategy. In the MACD strategy, there is a
reason why I recommend setting the stoploss
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below or above the pullback of the trend.
The pullback in the MACD strategy is really
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important, I will explain why in detail in
a future video, maybe Subscribe to see that,
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and ring that notification bell so you don't
miss it. In the MACD strategy we set the stoploss
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just above or below聽the pullback. Now if
you can exactly聽identify the end of聽a pullback
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while backtesting with a bot, there is no
problem. But many people find it difficult
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to find聽a pullback. And聽in many of the less聽performing
MACD setups that you guys have sent me, the
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stoploss is set at the wrong place. People
use Fractals and other similar indicators
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to find the pullback while auto backtesting.
A pullbacks according to the fractal indicator
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won't be always right, because price action
during a reversal is not always that smooth.
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Price can get choppy and go sideways before
goin back in the direction of the trend. When
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this happens, indicators that you are using
to find the pullback, will probably give a
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lot of false signals, or in other words, will
turn a profitable strategy into a losing one.
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One of the reasons I manually backtest instead
of using scripts, is because every trade is
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different and setting a proper聽stoploss and
profit target is much easier when I can see
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the obvious end of a pullback.
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The third mistake is not trading the trend.
If the price is moving sideways for a while,
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most indicators, except the Indicators that
are designed for range market trading, will
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give false signals. The MACD strategy is a
trend following strategy, so it works really
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good when the market is trending. if you get
low win rates with the MACD strategy, make
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sure the moving average is not looking flat
while entering the trades. When the moving
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average is flat, you should probably avoid
trading on that stock or forex pair with the
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MACD strategy.
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The fourth mistake, and it's not really a
backtesting mistake, that gave win rates around
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55 percent to some,聽when many people got
win rates as high as 68 percent, was not analyzing
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the market structure. If you have watched
the 5 steps strategy video, you know how important
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multi timeframe analysis can be. In my liive
trading videos, and in the trades I share
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on Patreon, I almost聽always use the multi
timeframe analysis to get the big picture.
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Multiple timeframe analysis can help you identify
price points where MACD can give a good entry
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signal. Multi timeframe analysis聽is one of
the most important things you can do before
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taking a trade. MACD strategy gives around
62 percent win rate on its own, but multi
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timeframe analysis is one of those things
that helped many achieve win rates high as
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68 percent. If you are struggling with a strategy,
try multi timeframe analysis. You can watch
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the 5 steps strategy video on the Trading
Rush channel to learn more about that.
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The 5th mistake that is seen among beginner
traders, is taking 10 trades to find the win
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rate of a trading聽strategy.聽To see if a
strategy is a profitable trading strategy
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or not, you will need to find its approximate
win rate. 10 trades is not enough, 100 trades
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or more are good enough to see if something
works in trading or not. Remember, the聽accurate
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win rate and approximate win rate are two
different things. There is probably no such
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thing as an聽accurate win rate of a trading
strategy, because the market is always changing.
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Stock trading many years ago was a聽little
bit聽different than what it is now, that's
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because of the change in聽liquidity. To see
if a strategy works or not, you only need
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to find its approximate win rate, which you
can do by testing it 100 times or more.
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For example, if a strategy with a聽1.5 to
1 reward risk ratio聽gives around 60 percent
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win rate after testing 100 or more times,
there is a聽very high chance that the strategy
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is a profitable strategy as we have seen after
taking 10000 virtual聽trades in one of the
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other videos. And remember, win rate of a
strategy goes up if the reward to risk ratio
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goes down, and vice versa. A strategy can
have a聽very high win rate and still lose
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money, if the reward to risk ratio is bad.
Similarly, one can have a strategy with a
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very low win rate such as 20 percent, and
still make money in the long run if their
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reward to risk ratio is very high. In other
words, if they are taking more profit than
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the risk per trade. So next time when someone
says that聽their strategy has this and that
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win rate, ask them with what reward to risk
ratio. Because they might be taking lower
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profits than the risk, just to get a high聽win
rate, and to fool you into buying their paid
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trading courses. Don't fall for that.
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That's all. Like the video if you liked it.
Subscribe to the Trading Rush channel聽and
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ring that notification bell聽for more trading
videos. Special thanks to all the Patrons聽for
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supporting the Trading Rush Channel on Patreon.
Thank you all for watching!
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