I. Principles of the MACD Trading System

  1. Composition of MACD
    MACD consists of three parts:

    • Fast Line (DIF): The difference between the short-term EMA (typically 12 days) and the long-term EMA (typically 26 days);

    • Slow Line (DEA): The M-day exponential moving average of DIF (typically 9 days);

    • Histogram: The difference between DIF and DEA, reflecting the distance between the fast and slow lines.

  2. Core Logic

    • Trend Identification:

      • DIF and DEA are above the zero axis: Bullish trend;

      • DIF and DEA are below the zero axis: Bearish trend.

    • Momentum Analysis:

      • Histogram enlarges: Momentum strengthens;

      • Histogram shrinks: Momentum weakens.

    • Buy and Sell Signals:

      • Fast and slow line crosses;

      • Histogram changes;

      • Zero axis breakthroughs.

  3. Applicable Market Conditions

    • Trending Market: MACD performs excellently in trend identification;

    • Sideways Market: MACD may generate more false signals.

II. Construction of the MACD Trading System

  1. Fast and Slow Line Cross Strategy

    • Buy Signal: DIF crosses above DEA (Golden Cross) and is above the zero axis;

    • Sell Signal: DIF crosses below DEA (Death Cross) and is below the zero axis;

    • Stop Loss: Price falls back to recent lows (buy) or rises to recent highs (sell).

  2. Zero Axis Breakthrough Strategy

    • Buy Signal: DIF and DEA break through the zero axis from below;

    • Sell Signal: DIF and DEA break below the zero axis from above;

    • Stop Loss: Price falls below the zero axis (buy) or rises above the zero axis (sell).

  3. Histogram Momentum Strategy

    • Buy Signal: Histogram turns positive from negative and gradually enlarges;

    • Sell Signal: Histogram turns negative from positive and gradually shrinks;

    • Stop Loss: Histogram turns negative again (buy) or turns positive again (sell).

  4. Position Management

    • Risk for a single trade controlled within 1%-2% of total capital;

    • After confirming the trend, positions can be added in batches.

III. Optimization of the MACD Trading System

  1. Parameter Adjustment

    • Fast Line Period (12 days):

      • Shortened Period (e.g., 6 days): Sensitive, suitable for short-term trading;

      • Extended Period (e.g., 24 days): Stable, suitable for long-term trading.

    • Slow Line Period (26 days):

      • Shortened Period (e.g., 13 days): Sensitive;

      • Extended Period (e.g., 52 days): Stable.

    • Signal Line Period (9 days):

      • Shortened Period (e.g., 5 days): Sensitive;

      • Extended Period (e.g., 12 days): Stable.

  2. Combine with Other Indicators

    • RSI: Filters overbought and oversold signals to improve win rate;

    • Bollinger Bands: Confirms price volatility range;

    • Volume: Confirms trend strength.

  3. Multi-Time Frame Analysis

    • Large Cycle (e.g., daily) to assess overall trend;

    • Small Cycle (e.g., 1 hour) to find specific entry points.

IV. Precautions

  1. Lagging Issues
    MACD is based on moving averages; signals lag behind price changes and may generate false signals at the end of trends.

    • Solution: Combine with leading indicators (such as RSI) or price action analysis.

  2. Risks in Sideways Markets
    In sideways markets, MACD may frequently generate golden crosses and death crosses, leading to losses.

    • Solution: Add trend filter conditions (such as zero-axis position) or switch to a ranging strategy.

  3. Parameter Over-Optimization
    Overfitting historical data may lead to poor performance of the system in the future.

    • Solution: Use out-of-sample data testing to ensure system robustness.

  4. Psychological Discipline

    • Strictly enforce stop-loss to avoid holding losing positions;

    • Accept the inherent losses of the system and pursue long-term positive expected value.

V. Practical Cases

Taking the fast and slow line cross strategy as an example:

  1. Buy Signal:

    • DIF crosses above DEA (Golden Cross) and is above the zero axis;

    • RSI not overbought (e.g., below 70).

  2. Sell Signal:

    • DIF crosses below DEA (Death Cross) and is below the zero axis;

    • RSI not oversold (e.g., above 30).

  3. Stop Loss: Price falls back to recent lows (buy) or rises to recent highs (sell).

  4. Take Profit: Price hits the opposite signal or a fixed risk-reward ratio (e.g., 2:1).

Conclusion

The MACD trading system is a classic and versatile trend-following tool, but its performance depends on market conditions and parameter settings. Through reasonable optimization, strict risk control, and psychological discipline, this system can become a cornerstone of stable profitability. However, traders must be aware: no system can adapt to all market conditions; the key lies in long-term consistent execution and continuous improvement.