Winning parameters for customized MACD
by John A. Narvarte
A common frustration with strategy testing is that it is not easy to find a profitable trading system,
particularly if you include brokerage fees. Even with a strategy that has worked for you in practice, the
test results are often not quite what you expect.
One obvious reason for this is that computerized strategy testing is totally mechanical. Signals are issued
and trades are executed automatically, according to a predetermined scheme without the benefit of past
experience and without veto power.
Another possibility is that the strategy in question might be too short-term, resulting in an inordinate
number of trades. Or else, the stock being tested might not respond to your strategy.
The purpose of this article is to present a long-term strategy that has tested positive for a number of
common stocks over a recent time period. Its underlying indicator is a smoothed moving average
difference oscillator that requires four time-span parameters. Buy and sell signals are issued when it
crosses its "signal" moving average. (This construction is very similar to Gerald Appel's Moving Average
Convergence/Divergence Indicator (MACD). Contact Signalert Corp., 40 Middle Neck Road, Great
Neck, NY 11021 for more information. Also, see Individual Stocks and MACD in this issue.) Before
defining the oscillator let me report some of my recent observations.