This is version 1 of a MACD divergence strategy for the pair NZD/USD
compounded by a
martingale for
recouping of losses and a trade flip formula so as to switch execution
sides. Extensive backtesting has shown that this strategy does not do
well on a trailing stop in the last 3 trading days, probably due to
month-end positioning in markets. Therefore, till 25th it trades
solely on a trailing stop with no TP (I had to put in a number in the
execution block, made it 999, which is impossible to be hit with a
trail in place) and from 26th trades on a 6 pip TP, which did well in
backtesting. Throughout the month the SL is 20. In my opinion, this is
not hibernation of a strategy as at first there was trading with no
TP. If there is a divergence between the MACD and price then the
strategy will either buy or sell depending on whether MACD is rising
or falling with regards to the opposite movement of the price, for
example if MACD is rising and price starts falling then Buy. The trade
amount of 6M and the martingale multiplier of 1,15 are not too risky
and have proved well in backtesting (higher amounts can lead to bigger
drawdowns). The strategy is not trading between the hours 20 – 1 GMT
due to lower liquidity at this time.
If a
trade closes in red then the 1,15
martingale multiplier kicks in and a flip formula is executed so as
to switch execution sides. I have not yet encountered such a flip
formula in this contest.
The MACD divergence generally informs that the market is unhealthy,
however
it does not give a definite signal that, for example, trend traders
are looking for, meaning if MACD rises and price falls then Buy. So,
as the signal can go both ways I have implemented
the flip formula so as to mitigate losses when actually being on the
wrong side of the divergence signal. Details of the strategy – IF :
5 min ADX 14 > 11 ; Day > 1 < 26 ; time > 1 < 20 ; 5 min Candle Close
Shift 5 > Sh3 > Sh1 > Sh0 ; 15 min MACD 12 / 26 Close Shift 18 < Sh 12
< Sh6 < Sh0 ; MACD Shift 18 < Sh0 ; last Buy trade in profit then Buy
&
last Buy trade a loss then Sell with multiplier 1,15 ; SL 20 trailing
stop 11 ; day = > 26 then same execution flip formula and martingale
with SL 20 and
TP 6. Initial trade amount 6M. Symmetrical action for a Sell stream.