Using Low ADX and MACD to Find Short-Term Long Trades

Summary

This project describes a short-term long strategy that looks for renewed strength during a low-trend-strength phase. It requires the 21-period EMA to be above the 42-period EMA, and the 42-period EMA above the 63-period EMA. ADX must be at or below 25 and rising versus the prior day, while the MACD histogram must also rise. The strategy enters at the end of the day and exits after three trading days. Stochastic and RSI are suggested as optional filters, with a potential reduction in trade frequency.

The author reports a backtest on Nifty daily data from 2012 through 2020, with 78 trades, roughly 48% cumulative return, and a 67% hit ratio. The article also says the approach was tested on Nifty and Bank Nifty, but it does not give separate results for each index. These findings come from a student project and a limited historical test; the article notes that live data may be needed to place and close trades near the market close, and that parameters could be varied.

Key ideas

• The strategy uses a bullish 21-, 42-, and 63-period EMA ordering to filter for an upward market.
• A rising ADX at or below 25 is treated as a possible early sign of renewed trend strength.
• A rising MACD histogram provides an additional confirmation for a long entry.
• Positions are entered at the end of the day and held for three trading days.
• The reported backtest covers Nifty daily data from 2012 to 2020 and does not establish live performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.