Since the first MACD video on the Trading Rush channel, many have emailed me about
how they are getting win rates as high as 68 percent. Many are getting multiple green
days in a row, but then there are few people who are only getting win rates around 50 to
55 percent. First of all, you are getting more than 50 percent win rate with a reward
to risk ratio of 1.5 to 1, there are people who spend a lot of money on courses to get
win rates like that. If you do the math, a 55 percent win rate with a 1.5 to 1 reward
ratio, is a really good win rate to make money in trading. Of course it is not good as many
of you guys are getting, and not even close to the win rate we saw in the MACD strategy
video. So I compared the MACD setups with 50 percent win rates, with setups of the people
getting around 60 to 65 percent win rates, and found 5 common mistakes in almost all
the 50 percent setups, that are keeping them away from making more money in trading.
The first mistake the 50 percent win rate setups made, that people with more than 60
percent win rates avoided, was not following all the MACD strategy rules. In the MACD
video and the videos after that, I clearly said that while backtesting, I didn't take
trades that had confusing or bad entries, and you should avoid them as well. This rule
was ignored by couple of people. I have taken many trades with the MACD strategy in the
liive markets over the years, when I made the MACD strategy video, which was also the
first video on this channel, I explained the strategy and added few rules that I personally
found useful. Over the years, I noticed some downsides and advantages of the MACD strategy.
So when I made that video, I added my personal rules to make the MACD strategy even more effective.
One of those rules that was implied in that video was not taking trades when price has
already made a big move in your favor.
One of the drawbacks of the MACD strategy, is that price sometimes makes a big move exactly
on the MACD candle, or one or two candles before it.
For example, this is one of the trades I shared with the wonderful Patrons who support the
Trading Rush on Patreon. In this trading setup, I did other analysis using multiple timeframes and
was waiting for the MACD to give a crossover. But exactly on the MACD signal candle, the
price made a big move in my favor. This makes the signal invalid, and I didn't take it because
the price already made the move I was anticipating. Furthermore, even if I had taken the entry
after this big candle, the stoploss would have been so big, that price would have had
to travel a lot of distance to get a decent reward to risk ratio. In other words, the
probability of these setups are really low, and that's exactly why I added the "don't
take when entry looks confusing rule", and ignored the trades that had way too big stoplosses
and other similar issues, and added 0 in profit when the entry was confusing while
backtesting.
The second mistake I see a lot of people make, is using a bot or script to test the
strategy. In the MACD strategy, there is a reason why I recommend setting the stoploss
below or above the pullback of the trend. The pullback in the MACD strategy is really
important, I will explain why in detail in a future video, maybe Subscribe to see that,
and ring that notification bell so you don't miss it. In the MACD strategy we set the stoploss
just above or below the pullback. Now if you can exactly identify the end of a pullback
while backtesting with a bot, there is no problem. But many people find it difficult
to find a pullback. And in many of the less performing MACD setups that you guys have sent me, the
stoploss is set at the wrong place. People use Fractals and other similar indicators
to find the pullback while auto backtesting. A pullbacks according to the fractal indicator
won't be always right, because price action during a reversal is not always that smooth.
Price can get choppy and go sideways before goin back in the direction of the trend. When
this happens, indicators that you are using to find the pullback, will probably give a
lot of false signals, or in other words, will turn a profitable strategy into a losing one.
One of the reasons I manually backtest instead of using scripts, is because every trade is
different and setting a proper stoploss and profit target is much easier when I can see
the obvious end of a pullback.
The third mistake is not trading the trend. If the price is moving sideways for a while,
most indicators, except the Indicators that are designed for range market trading, will
give false signals. The MACD strategy is a trend following strategy, so it works really
good when the market is trending. if you get low win rates with the MACD strategy, make
sure the moving average is not looking flat while entering the trades. When the moving
average is flat, you should probably avoid trading on that stock or forex pair with the
MACD strategy.
The fourth mistake, and it's not really a backtesting mistake, that gave win rates around
55 percent to some, when many people got win rates as high as 68 percent, was not analyzing
the market structure. If you have watched the 5 steps strategy video, you know how important
multi timeframe analysis can be. In my liive trading videos, and in the trades I share
on Patreon, I almost always use the multi timeframe analysis to get the big picture.
Multiple timeframe analysis can help you identify price points where MACD can give a good entry
signal. Multi timeframe analysis is one of the most important things you can do before
taking a trade. MACD strategy gives around 62 percent win rate on its own, but multi
timeframe analysis is one of those things that helped many achieve win rates high as
68 percent. If you are struggling with a strategy, try multi timeframe analysis. You can watch
the 5 steps strategy video on the Trading Rush channel to learn more about that.
The 5th mistake that is seen among beginner traders, is taking 10 trades to find the win
rate of a trading strategy. To see if a strategy is a profitable trading strategy
or not, you will need to find its approximate win rate. 10 trades is not enough, 100 trades
or more are good enough to see if something works in trading or not. Remember, the accurate
win rate and approximate win rate are two different things. There is probably no such
thing as an accurate win rate of a trading strategy, because the market is always changing.
Stock trading many years ago was a little bit different than what it is now, that's
because of the change in liquidity. To see if a strategy works or not, you only need
to find its approximate win rate, which you can do by testing it 100 times or more.
For example, if a strategy with a 1.5 to 1 reward risk ratio gives around 60 percent
win rate after testing 100 or more times, there is a very high chance that the strategy
is a profitable strategy as we have seen after taking 10000 virtual trades in one of the
other videos. And remember, win rate of a strategy goes up if the reward to risk ratio
goes down, and vice versa. A strategy can have a very high win rate and still lose
money, if the reward to risk ratio is bad. Similarly, one can have a strategy with a
very low win rate such as 20 percent, and still make money in the long run if their
reward to risk ratio is very high. In other words, if they are taking more profit than
the risk per trade. So next time when someone says that their strategy has this and that
win rate, ask them with what reward to risk ratio. Because they might be taking lower
profits than the risk, just to get a high win rate, and to fool you into buying their paid
trading courses. Don't fall for that.
That's all. Like the video if you liked it. Subscribe to the Trading Rush channel and
ring that notification bell for more trading videos. Special thanks to all the Patrons for
supporting the Trading Rush Channel on Patreon. Thank you all for watching!