If we combine the MACD with the Stochastic indicator, will you make more money in trading? Does the MACD and Stochastic indicator even work together? Well, MACD is one of the best indicators we have tested on the Trading Rush channel. We found out that the MACD indicator has a really high win rate when compared with other indicators we have tested so far… but can we increase that win rate even more by combining the MACD with the Stochastic indicator?

Now I haven’t tested the Stochastic indicator yet, but I have tested the Stochastic RSI trading strategy 100 times, and it didn’t had a very good win rate. In fact, the win rate it had was even worse than the regular RSI trading strategy. But that’s Stochastic RSI, not the Stochastic indicator. I’m going to test the Stochastic indicator 100 times on its own in the future videos. So Subscribe to the Trading Rush channel and ring that notification bell, to see Stochastic and other trading indicators tested 100 times to find their win rates, because you don’t want to trade with a strategy that doesn’t even work.

In this video, I’m going to test the MACD and Stochastic trading strategy 100 times to see if it works. Now you already know about the MACD strategy so I won’t go into detail about it. If you don’t know about the best MACD trading strategy, check out the first video on this channel.

In the MACD strategy video, I said buy when the MACD gives a crossover below the zero line, and sell when the MACD gives a crossover above the zero line. But in the MACD and Stochastic trading strategy that you guys have brought to my attention, long trades are not necessarily taken below the zero line, and short signals are not always taken above the zero line.

In my MACD strategy video, I said to buy below and sell above the zero line because of how the MACD is calculated and works. I will explain why zero line of the MACD indicator is so important in a future video.

In the MACD and Stochastic strategy, the rule that made the MACD strategy so successful is broken. Here’s how the MACD and Stochastic strategy goes.

When the K line of the Stochastic indicator, crosses below 20, buy at the bullish MACD crossover. Bullish MACD crossover is when the MACD line crosses above the signal line. The crossover doesn’t have to be below the zero line. For example, here, first the K line of the Stochastic indicator went below 20. When this happens, it means the price is oversold and we should look to buy. But we won’t buy until we see a bullish MACD crossover after the Stochastic oversold signal. Remember, the buy signal is only valid, if the MACD crossover comes after the Stochastic oversold signal. Set your stoploss just below the swing low.

Similarly, when the K line of the Stochastic indicator, crosses above 80, sell at the bearish MACD crossover. Bearish MACD crossover is when the MACD line crosses below the signal line. For example, here the K line of the Stochastic indicator went above 80. It means that the price is over bought and we should look to sell. But we will only sell when a bearish MACD crossover signal is generated after the Stochastic over bought signal. Remember that MACD sell signal has to come after the Stochastic over bought signal. Set your stoploss just above the swing high.

Now this is not a trend following strategy. As you already know, on the Trading Rush channel, we trade in the direction of the long term trend direction. We can use the 200 period exponential moving average to find the trend direction. A long entry signal given by the MACD and Stochastic strategy is only valid, when the entry candle is completely above the moving average. Similarly, a short entry signal is only valid, when the entry candle is completely below the 200 period moving average.

So, I tested the MACD and Stochastic trading strategy 100 times, and here’s what happened.

Number 1. As you probably guessed, the false signals that we filtered in the MACD trading strategy video, were taken in this strategy. Since MACD is an excellent indicator when it comes to indicating the end of a pullback in a trend, not all crossover signals taken without the zero line rule were bad. I tested the strategy on the 30 mins timeframe and on the Euro JPY pair, and I used the official Trading Rush App while backtesting. You can download the Trading Rush app from the play store or using the link in the description. Use it while testing your trading strategy, it will calculate win rate and other data in just one click.

Number 2. Since we used the Stochastic indicator to find overbought and oversold areas, the Stochastic indicator was acting like a filter system. It was filtering false MACD trades by only allowing long and short signals at the over sold and over bought zones respectively. And during the backtest, I noticed that whenever the bullish MACD crossover was below the zero line, the Stochastic was usually in the oversold zone. What this means is, the buy and sell signals we get using MACD strategy, are usually near the oversold and overbought zones. In simple words, the MACD strategy that we have already tested with the zero line rule is better than this.

Number 3. Like other indicators, MACD and Stochastic trading strategy works really good when the market is trending. If you look carefully, you will notice that there is a delay between the Stochastic signal and the MACD signal. And you can also notice that when MACD gives a long entry signal, the Stochastic is already near the overbought zone which can indicate a selling pressure. You can notice a similar pattern in a sell setup. Since this is a trend following strategy and since price goes in one direction in a trending market, indicators like the Stochastic will show patterns like these, and they are completely fine, especially in this case where we are using the stochastic to find the end of a pullback in a trend. But while backtesting, I noticed that in an uptrend, most of the long trades, had a higher profit potential when the stochastic K line, was below the 80 level at the entry candle. Similarly in a down trending market, most trades had a good reward to risk ratio when the stochastic K line was above the 20 level at the time of the entry. So in other words, to improve the MACD and stochastic trading strategy even further, you can filter trades by only taking long entry signals if the K value of the stochastic indicator is below 80. Similarly, you can get better profit potential if you only sell when the k value is above the 20 level.

So after testing the stochastic and MACD strategy 100 times, I got a win rate of approximately 53 percent. Now remember, I tested the strategy with a 1.5 to 1 reward to risk ratio, in other words the profit potential was more than the risk, and because of that, the MACD and Stochastic indicator trading strategy, made a profit of 3250 in this backtest. It had 6 winners in a row and 5 losing trades in a row. The profit graph also looks pretty good when compared with other indicators we have tested on the Trading Rush channel. MACD and Stochastic trading strategy is a profitable strategy. It didn’t achieve a higher win rate like the MACD did on its own, but this strategy is definitely in the top 5 best strategies we have tested so far list. Let’s see how long it can stay in that list, and lets see if other strategies can perform even better when we test them 100 times in the future videos.