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I took 100 trades with MACD + STOCHASTIC Trading Strategy and the results were... - YouTube
Channel: TRADING RUSH
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If we combine the MACD with the Stochastic
indicator, will you make more money in trading?
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Does the MACD and Stochastic indicator even
work together? Well, MACD is one of the best
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indicators we have tested on the Trading Rush
channel. We found out that the MACD indicator
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has a really high win rate when compared with
other indicators we have tested so far. But
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can we increase that win rate even more by
combining the MACD with the Stochastic indicator?
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Now I haven't tested the Stochastic indicator
yet, but I聽have tested the Stochastic RSI
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trading strategy 100 times, and it didn't
had a very good win rate. In fact, the win
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rate it had was even worse than the regular
RSI trading strategy. But that's Stochastic
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RSI, not the聽Stochastic indicator. I'm going
to test the Stochastic indicator 100 times
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on its own in the future videos. So聽Subscribe
to the Trading Rush channel and ring that
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notification bell, to see Stochastic and other
trading indicators tested 100 times to find
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their win rates, because you don't want to
trade with a strategy that doesn't even work.
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In this video, I'm going to test the MACD
and Stochastic trading strategy 100 times
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to see if it works. Now you already know about
the MACD strategy so I won't go into detail
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about it. If you don't know about the best
MACD trading strategy, check out the first
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video on this channel.
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In the MACD strategy video, I said buy when
the MACD gives a crossover below the zero
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line, and sell when the MACD gives a crossover
above the zero line. But in the MACD and Stochastic
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trading strategy that you guys have brought
to my attention, long trades are not necessarily聽taken
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below the zero line, and short signals are
not always taken above the zero line.
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In my MACD strategy video, I said to buy below
and sell above the zero line because of how
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the MACD is calculated and works. I will explain
why zero line of the MACD indicator is so
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important in a future video.
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In the MACD and Stochastic strategy, the rule
that made the MACD strategy so successful
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is broken. Here's how the MACD and Stochastic
strategy goes.
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When the K line of the Stochastic indicator,
crosses below 20, buy at the bullish聽MACD
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crossover. Bullish MACD crossover is when
the MACD line crosses above the signal line.聽The
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crossover doesn't have to be below the zero
line. For example, here, first the K line
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of the Stochastic indicator went below 20.
When this happens, it means the price is oversold
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and we should look to buy. But we won't buy
until we see a bullish聽MACD crossover after
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the Stochastic oversold signal. Remember,
the buy signal is only valid, if the MACD
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crossover comes after the Stochastic oversold
signal. Set your stoploss just below the swing
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low.
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Similarly, when the K line of the Stochastic
indicator, crosses above 80, sell at the bearish
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MACD crossover. Bearish MACD crossover is
when the MACD line crosses below the signal
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line. For example, here the K line of the
Stochastic indicator went above 80. It means
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that the price is over bought and we should
look to sell. But we will only sell when a
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bearish MACD crossover signal is generated
after the Stochastic over bought signal. Remember
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that MACD sell signal has to come after the
Stochastic over bought signal. Set your stoploss
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just above the swing high.
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Now this is not a trend following strategy.
As you already know, on the Trading Rush channel,
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we trade in the direction of the long term
trend direction. We can use the 200 period
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exponential聽moving average to find the trend
direction. A long entry signal given by the
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MACD and Stochastic strategy is only valid,
when the entry candle is completely above
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the moving average. Similarly, a short entry
signal is only valid, when the entry candle
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is completely below the 200 period moving
average.
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So, I tested the MACD and Stochastic trading
strategy 100 times, and here's what happened.
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Number 1. As you probably guessed, the false
signals that we filtered in the MACD trading聽strategy
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video, were taken in this strategy. Since
MACD聽is an excellent indicator when it comes
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to indicating the end of a pullback in a trend,
not all crossover signals taken without the
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zero line rule were bad. I tested the strategy
on the 30 mins timeframe and聽on the Euro
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JPY pair, and I used the official聽Trading
Rush App while backtesting. You can download
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the Trading Rush app from the play store or
using the link in the description. Use it
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while testing your trading strategy, it will
calculate win rate and other data in just
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one click.
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Number 2. Since we used the Stochastic indicator
to find overbought and oversold areas, the
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Stochastic indicator was acting like a filter
system. It was filtering false MACD聽trades
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by only allowing long and short signals at
the over sold and over bought zones respectively.
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And during the backtest, I noticed that whenever
the bullish MACD crossover was below the zero
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line, the Stochastic was usually in the oversold
zone. What this means is, the buy and sell
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signals we get using MACD strategy, are usually
near the聽oversold and overbought zones. In
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simple words, the MACD strategy that we have
already tested聽with the zero line rule is
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better than this.
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Number 3. Like other indicators, MACD and
Stochastic trading strategy works really good
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when the market is trending. If you look carefully,
you will notice that there is a delay between
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the Stochastic signal and the MACD signal.
And you can also notice that when MACD gives
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a long entry signal, the Stochastic is already
near the overbought zone which can indicate
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a selling pressure. You can notice a similar
pattern in a sell setup. Since this is a trend
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following strategy聽and since price goes in
one direction in a trending market,聽indicators
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like the Stochastic will show patterns like
these, and they are completely fine, especially
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in this case where we are using the stochastic
to find the聽end of a pullback in a trend.
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But while backtesting, I noticed that in an
uptrend, most of the long trades, had a higher
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profit potential when the stochastic K line,聽was
below the 80 level at the entry candle. Similarly聽in
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a down trending market,聽most trades had a聽good
reward to risk ratio when the stochastic K
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line was above the 20 level at the time of
the entry. So in other words, to improve the
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MACD and聽stochastic trading strategy even
further, you can filter trades by only taking
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long聽entry signals if the K value of the
stochastic indicator is below 80. Similarly,
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you can get better profit potential if you
only sell when the k value is above the 20
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level.
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So after testing the stochastic and MACD strategy
100 times, I got a win rate of approximately
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53 percent. Now remember, I tested the strategy
with a 1.5 to 1 reward to risk ratio, in other
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words the profit potential was more than the
risk, and because of that, the MACD and Stochastic
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indicator trading strategy, made a profit
of聽3250 in this backtest. It had 6 winners
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in a row and 5 losing trades in a row. The
profit graph also looks pretty good when compared
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with other indicators we have tested on the
Trading聽Rush聽channel. MACD and Stochastic
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trading strategy is a profitable strategy.
It didn't achieve a聽higher win rate like
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the MACD did on its own, but this strategy
is definitely in the top 5 best strategies
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we have tested so far聽list. Let's see how
long it can stay in that list, and lets see
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if聽other strategies can perform even聽better
when we test them 100 times in the future
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videos.
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That's all. Like the video if you liked it.
Subscribe to the Trading Rush channel and
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ring that notification bell to see more trading
strategies tested multiple times. After all,
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you don't want to use an indicator that has
a bad win rate. Check out the Trading Rush
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App. Maybe consider supporting the Trading
Rush channel on Patreon, thanks a lot for聽watching.
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