MACD Histogram Strategy
This is a deviation from the original MACD indicator, developed by Alexander Elder in the book called Trading For A Living.
The histogram is the fast line subtracted from the slower signal line. This relationship is quite important, and back in 2012, we published an article about developing a strategy based on the MACD-histogram.
How has the strategy performed since then? We backtested it using leverage and used the ETF with the ticker code QLD, which tracks the Nasdaq 100 2x.
This is the equity curve:
There were 85 trades, and the average gain was 2.2% from its inception in 2007 until today.
Annual returns were 10.4% —not bad for being invested only 5% of the time! The max drawdown was 19%, which is low considering the 2x leverage.