MACD Divergence

While comparing the TrendZ indicator against MACD, I noticed a bunch of good signals from divergence patterns in MACD.

In the chart below, the first A-E crosses are divergence. F-J isn’t but still worked.

I wanted to see if this really works so I coded a strategy to trade when it detects divergence, or even the convergence (I guess that is what it is called when the price and indicator move in the same direction). I tested many things like only trading in the direction of the trend etc etc but during optimization I could not get this to win more than 40% of trades. It was possible for it to be just profitable with a risk reward of 1:2 but not enough that I would put my real money on it.

Perhaps using this for trading signals in conjunction with something else is best.

Posted in Indicators, Research, Strategies and tagged , , , .

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