Can Supertrend MACD Trading Strategy make more money in the long run?
This is one of the most requested strategies, and in this video, we are going to take 100
trades with it to find its win rate, and to see if it works or not.
But why would anyone want to combine MACD with Supertrend?
You see, Supertrend as the name says, shows the short-term trend direction on a Forex
and Stock Market Chart.
And the MACD indicator is a momentum indicator.
So when you combine the two indicators, you are trying to identify, and take trades at
the end of the pullbacks in the direction of the Supertrend.
However, these pullbacks will be smaller than the pullbacks MACD Strategy with zero line
rule tries to identify because when the pullback is big, Supertrend shows an opposite trend
most of the time.
To filter some of the false MACD signals even further, we will use the Beep Boop Indicator
that we created in one of the previous videos.
Also, one thing to note, is that the reason why the Supertrend MACD combination was requested
many times, was because Supertrend, MACD, and Beep Boop Indicator got good profitable
win rates on their own.
So combining two profitable strategies sounds like a good idea at first glance.
But till now, out of all the combinations we have tested 100 times, almost none of them
have achieved a higher win rate than what they got after testing separately.
The Supertrend MACD Strategy goes like this.
When the Supertrend shows an uptrend, and the price is above the 200 period moving average,
the buy entry signal is when the MACD line crosses above the signal line.
But in this case, since we are using the Beep Boop Indicator, the buy signal is when the
Beep Boop Indicator turns green.
Since we are using MACD to identify the pullbacks, the stoploss goes below the pullback in the
uptrend.
Similarly, when the Supertrend shows a downtrend, and the price is below the 200 period moving
average, the sell signal is when the MACD line crosses below the signal line, or when
the Beep Boop Indicator turns red.
The stoploss goes above the pullback in the downtrend.
Note that the Beep Boop indicator also uses a 50 period moving average to filter some
of the false MACD signals in the slow markets.
In the MACD Supertrend combination, since we are taking trades at almost every MACD
crossover, we are expecting the profit line to go in the upward or downward direction
in a straight line for a while.
And at the beginning, the Supertrend MACD combination won multiple trades in a row and
the profit line went in an upward direction.
The Supertrend even filtered many signals that it thought were false.
Some of these filtered signals would have taken by the MACD Strategy that we saw on
the Trading Rush Channel, and won.
But that was not the big problem with the Supertrend MACD strategy.
You see, even though we are taking trades at almost every MACD crossover in the direction
of the Supertrend when the trend was good, many trades were won in a row.
But, the Supertrend indicator only shows uptrend and downtrend.
In a downtrend, if the price stops making new lower swing lows, but doesn't make any
new higher swing highs, the Supertrend will still show the same downtrend.
In simple words, after a downtrend, if the price starts to go in the sideways direction,
instead of starting an uptrend, the Supertrend will still identify the trend as a downtrend.
That's not a problem if you are taking few entry signals in a short amount of time.
But this time, with the MACD crossovers, we are.
And during these slow trends, MACD gives many crossovers resulting in multiple losing trades
in a row.
Even after winning multiple trades at the beginning, the profit line with the Supertrend
MACD Trading Strategy went in the sideways direction for the most part, and not consistently
in one direction.
The MACD Supertrend Trading Strategy got a 42 percent approximate win rate with a 1.5
to 1 Reward Risk Ratio.
40 percent is the breakeven percentage, but because of the sideways profit graph, we can
say the Supertrend MACD combination is more like a hit or miss strategy.
4.2+5.5+4+2+4.5
And gets a TR Score of 20.2 out of 50, and 38th from the top, below the Awesome Oscillator
First Strategy, and above the Aroon Trading Strategy.
That's all.