Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more.
There are 3 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA.
The Moving Average Convergence Divergence or the MACD is a momentum-based indicator that shows the relationship between two different EMAs. It is calculated by subtracting the EMA over the larger period from the EMA over the shorter period. This line can then be superimposed over another EMA line (called the signal line) in order to use as a buy or sell signal. Usually, traders go long when the MACD is above the EMA, and short when the MACD is below the EMA.
The Parabolic Stop and Reverse indicator (PSAR) is a trend-following indicator. It is comprised of a single parabolic line above or below the candles on the charts. It is used to analyse the current price direction, as well as spot potential exit and entry opportunities.
For this particular trading setup, the following settings were used on the indicators:
- EMA: The 200EMA was used.
- MACD: The default settings were used.
- PSAR: The default settings were used.
A long is initiated whenever the PSAR indicates a buy, the current price level is above the 200EMA, and there is a MACD crossover below the 0 line. A short is initiated whenever the PSAR indicates a sell, the current price level is below the 200EMA, and there is a MACD crossover.
The risk-reward ratio for this strategy is 1:2.
Results and Adjustments
The overall results were:
Profitability: 108.78% net profit
Number of Trades: 175
% of trades profitable: 40%
Profit factor: 1.276
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- You can adjust the stop-loss and take-profit levels to boost profitability.
- You can also try and adjust the risk-reward ratios in order to increase the riskiness and potentially increase the profitability of the strategy.
- You can reduce the lookback factor to increase profits.
There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability.
- AMAZING 70% WINRATE STRATEGY CODED + BACKTESTED (MACD + PARABOLIC SAR + 200 EMA) – YouTube
- TradingView Strategy
- Settings Used in Video
- Exponential Moving Average – Investopedia
- Moving Average Convergence Divergence – Investopedia
- Parabolic Stop and Reverse – The Balance