Rather than blatantly stating wether this "system" will work or not, you deserve kudos for presenting your thoughts with a graph and as a concrete topic that may be discussed. This usage of MACD isn't proprietary or secret and many use weekly timeframe for filtering markets and long-term opportunities. However, in my view this is not yet a realizable trading system, as you don't really describe how to trade it. Apart from the pretty graph, there's really no way to measure its profitability without some answers to questions such as: How often (ie. per week) will you analyse and take trades on this system? Are you comfortable waiting a whole week before recognizing and acting on a signal? In the graph, where will the final system take trades? Are the simulated trades too optimistic and perhaps should it always take the pessimistic price? Are there more details that should be clearly defined and then result of backtest shown with appropriate figures? Also, seasoned traders will quickly recognize that while this may be a good enough assumption for filtering markets long-term, the number of trades are really too few to be considered statistically significant.
I appreciate where you are coming from but I doubt in your 7 years you have put in 10,000 hours or so of staring at charts and their nuances. Your question is very basic and I don't mean this in a condescending way but a very naive question at that. Despite my differences with what ZZzz1 sometimes says he is absolutely correct if you plan to do this simple system then buy and hold or professional management would be best for you. It is NOT as simple as you think. The reason this "system" worked over the last 22 years is that we have had more volatility in the last 22 years. We had a major market top in the dot com bubble and a major market top in the collapse of worldwide financial markets. In these crashes this "simple" system would keep you out of the major downturns and get you back in to buy again at better prices. If prices consolidate this system will fail miserably. If in those two major downturns and then subsequent upturns in the market and you only outperform an index by 1% I think is telling you it's a bad system. You have not considered commissions and cost of index funds in there I suspect. If there is no major downturn of those magnitudes in the next 32 years for you then you will not match the index. Markets spend more time consolidating than they do trending and you need to have a plan for those times where this system will fail miserably. Test out this system in other times not just the last 22 years. Pick periods of consolidation and you will see.
Hindsight is great, isn't it? Check out GE weekly last 5 years and you will see very much the opposite. The trouble is you won't know for a few years when it s not working, often problems of indicators. I use MACD in my long term stocks and commodities, but have found most indicators are not a one size fits all for flip flopping buys and sells as you not buying low or selling high, using them for divergences and using different trend identifier works better for me. GE has been in my retirement account over 20 years as I like the dividends and can dance options around them. Check out 401k LLC's for being able to do much more than regular 401k's like selling short, they are self directed.
Hello, the description of when to trade is on top of the picture, its more so when to switch allocation as this isnt probably trading but more so investing Ill put the answers under your questions How often (ie. per week) will you analyse and take trades on this system? ------system needs to be looked at about once monthly or so, a trade is condicted if the mavd has crossed above or below 0 line Are you comfortable waiting a whole week before recognizing and acting on a signal? ------- yes, some of these signals dont change for years which means no trading, considering this is my long term holding this is ideal because my focus is on trading else where, with this i wanted a system that i dont need to actively manage In the graph, where will the final system take trades? -----the begining of orange shading is where the system enters the trade, meaning switch from cash to stocks (S&P 500) Are the simulated trades too optimistic and perhaps should it always take the pessimistic price? ------ the trades simply enter and exit if macd line is above or below 0 line, absolute enforcement is needed and was also calculated in the simulated trades, as u can see the system did have about 4-6 whipsaw signal Are there more details that should be clearly defined and then result of backtest shown with appropriate figures? ----- as far as details its all in there but as my opinion as well as others opinions on the thread i do beloeve adding more to the system can enhance it
i agree on its not one size fits all, and i so far only referring to MACD weekly on S&P 500, i did notice it did horrible on other instruments. Also just for clarification in the picture i posted its using MACD above and below the 0 line and NOT its cross as in GE..... but none the less looking at its validity as you say is thousand percent true.. 401k LLC,,, lovely, this is something iam definitely gonna take notes on and research since it gives more flexibility, specially also since my departure decision from my employer is nearing (in which then i can take my 401k any where)
It can be really simple, a lot of people overthink when it comes to trading. However this seems to easy ...