A comparative analysis of using Moving Average Convergence Divergence indicator in the forex market with risk-free investment strategies

Abstract

Technical analysis has been widely studied in academic literature. It so is the Moving average convergence divergence (MACD) indicator in stock and forex markets. The research on MACD indicator mostly shows negative or mixed results when applied to the forex market. However, past studies do not take the fixed risk for every trade, have a very high value of risk employed for every trade that a trader will not mostly undertake, fixed stop loss, or a combination of these. This study analyses MACD indicator’s profitability and a strategy of using MACD indicator with an exponential moving average as a filter for getting into trades, on hourly data for EUR-USD, GBP-USD, USD-JPY from 1st January 2019 to 31st December 2019. It then compares it with risk-free investment strategies using US T-bills for the same period. Fixed and minimal risk of 1% of the initial account balance is employed for every trade. The findings suggest that the strategies fail to give profits more than any of the risk-free strategies for the currencies tested in this paper. In five out of six cases, three currency pairs for MACD strategy and the same three pairs for the MACD with exponential moving average (MACD-EMA) strategy do not generate profit. Only MACD-EMA (where EMA is used as a filter) strategy when applied to EUR-USD gives profit, which is also less than any riskfree investment strategy.

Imprint

Karan Sejwar, Madhvi Sethi. A comparative analysis of using Moving Average Convergence Divergence indicator in the forex market with risk-free investment strategies. Cardiometry; Issue 24; November 2022; p.692-698; DOI: 10.18137/cardiometry.2022.24.692698; Available from: https://www.cardiometry.net/issues/no24-november-2022/comparative-analysis-using