The MACD Trading Strategy Only Works Flipped On Its Head

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Do you use the MACD trading strategy?

Well, I've tested it, and the results are going to shock you - it doesn't work at all!

It's the REVERSE MACD trading strategy that actually works.

Back when I first started trading, I read all the books on technical analysis I could find...but guess what?

All the books are wrong!

More...

The Reverse MACD Trading Strategy

Technical Analysis should have no place in your trading - and I'm going to prove it.

For example, the Moving Average Convergence Divergence indicator (MACD).

It’s just two exponential moving averages "EMA" – one fast, one slow.

When the fast EMA crosses above the slow EMA, you have a standard buy signal.

(It’s just another way of saying “price is moving up.”)

But here’s the shocker…all the dummies that put out these books never computer-tested a strategy in their life.

Here's the standard "out-of-the-box" MACD trading strategy attempting to trade the S&P 500 ETF "SPY".

MACD Trading System

The Standard MACD Trading System Most Traders Use Is Garbage

Ugly!

You wouldn't want to trade that, in fact, I would hope you would throw up your arms in disgust.

Maybe you've tried it and had these exact results?

Mind-blowing huh?

The MACD (which a huge number of traders think is some sort of Holy Grail) doesn't work!

But, and this is the crazy part, you can take the default MACD and invert it; buying the sell signals and then selling the buy signals.

When you do the opposite of what the MACD tells you, I call it the reverse MACD trading system, this is what happens:

MACD Trading System

Technical Analysis Is Not Only Wrong, But Sometimes Is Completely Backward! 

You can’t make this stuff up.

Besides a nasty loss during the COVID crash and the 2022 bear market, the reverse MACD trading strategy is remarkably profitable.

Computers Don't Lie About The MACD

Imagine paying for an education, and all you get is a bunch of not only wrong but completely backward information.

In my early years, the MACD, RSI, and Stochastic indicators were like Holy Grails.

How couldn't they work with some many traders using them? 

But realize this, every indicator out there does the same thing as the MACD.

They all take in price, make your charts look fancy, and make you look like you know what you're doing.

When you eyeball charts, it looks like the MACD catches trends, but the computer – unlike your eyes and mental biases – doesn’t lie.

The reverse MACD trading strategy proves beyond a doubt that everything you think you know about technical analysis is wrong.

The Reverse MACD Proves There's Anti-Momentum in Stocks

What this little experiment shows is that there’s actually anti-momentum in the stock market; stock prices suddenly reverse direction.

Like a school of fish moving away from danger.

To trade using anti-momentum you need two things:

  1. Balls to buy when there's been a big down day and no reversal in sight
  2. Always trade in the direction of the trend

Some traders simply use a 200-day moving average of the S&P 500 to determine a trend.

Here are some examples of the Reverse MACD trading strategy in action.

Notice how the trades buy into major weakness and sell into strength.

The Reverse MACD Trading Strategy In Action

The Reverse MACD Trading Strategy In Action

I hope you’ve learned something valuable...like asking for scientific proof a strategy works before accepting it in blind faith.

And as the reverse MACD trading strategy shows, the dolts that believe in technical analysis obviously never tested a trading idea in their life.  

Don't believe the quackery, test your ideas before risking a dime of your money.

The Reverse MACD Trading Strategy Conclusions

  • Ask for scientific proof a strategy works before risking a single dime
  • Technical Analysis is a pseudoscience and has no place in trading just like Fibonacci levels
  • Here's the Reverse MACD Trading Strategy code for you to try at home (this is TradeStation or Multi-Charts code)

/////////////////////////////////////////////////////////////////////////////////////////
		{ The Reverse MACD Trading Strategy - Behold! Technical Analysis is a lie!		}
		{ (c) relaxedtrader.com 															}
        { This system is to be used on the S&P 500 ETF SPY using daily bars				}
		{ Flip "under" and "over" in the code below to get the standard MACD system		}
/////////////////////////////////////////////////////////////////////////////////////////
inputs:  
	FastLength( 12 ) [DisplayName = "FastLength"], 
	SlowLength( 26 ) [DisplayName = "SlowLength"], 
	MACDLength( 9 ) [DisplayName = "MACDLength"];
	
variables:  
	MyMACD( 0 ), 
	MACDAvg( 0 ), 
	MACDDiff( 0 );
MyMACD = MACD( Close, FastLength, SlowLength );
MACDAvg = XAverage( MyMACD, MACDLength );
MACDDiff = MyMACD - MACDAvg;
if CurrentBar > 2 and MACDDiff crosses {over} under 0 and close > xaverage(close, 200) then 
	Buy ( !( "BUY" ) ) next bar at market;
	
if CurrentBar > 2 and MACDDiff crosses {under} over 0 then 
	Sell  ( !( "SELL" ) ) next bar at market;
    

Happy Trading!

PS. Remember my mantra:

If you can't test it, you shouldn't be trading it!

About the Author

Hello! I'm Kurt, the "Relaxed Trader" writing the stuff on this website. I love talking to fellow traders that want to use computers to beat the stock market. Shoot me an email at kurt@relaxedtrader.com or leave a comment below!

  • Rakesh Poluri says:

    Agree with this. Was amused to see this holds true for even with the Indian index (Nifty 50).

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