MACD of Relative Strenght Strategy

The MACD of Relative Strenght Strategy indicator provides a comprehensive trading system that combines the momentum-tracking capabilities of the MACD with a custom Relative Strength metric to identify high-probability long entries.

Usage

The strategy is designed primarily for capturing long-side momentum. It generates a "MACD of an indicator," where the source for the MACD calculation is not the price itself, but a Relative Strength (RS) value.

• Entry Signal: A long position is initiated when the MACD histogram turns positive (green).
• Exit Signal: The position is closed when the MACD histogram turns negative (red).
• Risk Management: The strategy includes a built-in stop loss set at a percentage of the trade value (default 8%) to protect against significant drawdowns.
• Compounding/Deleveraging: The script features a unique "Fixed Ratio" money management system. As equity grows or shrinks by a specific dollar amount, the order size is automatically adjusted to reinvest profits or reduce exposure during losing streaks.

Details

This tool utilizes a specific formula for Relative Strength: RS = Close / Highest High (Length). This compares the current price to its peak over a user-defined period, effectively measuring how well the asset is performing relative to its own historical resistance.

By applying the MACD formula to this RS value, the script filters out standard price noise and focuses on assets showing "anomaly" momentum. The strategy purposefully ignores short signals, focusing on the historical reliability of long-biased momentum in trending markets.

Settings

Technical parameters

• RS Length: The lookback period used to find the highest high for the Relative Strength calculation.
• MACD Fast Length: The period for the fast EMA used in the MACD calculation of the RS values.
• MACD Slow Length: The period for the slow EMA used in the MACD calculation of the RS values.
• MACD Signal Smoothing: The smoothing length for the MACD signal line.

Risk Management

• Max risk per trade (in %): The percentage distance for the hard stop loss based on the entry price.

Money Management

• Fixed Ratio Value ($): The dollar amount of profit or loss required to trigger a change in the order size.
• Increasing Order Amount ($): The amount of capital added to or subtracted from the trade size when a Fixed Ratio threshold is met.

FAQ

How do I interpret the histogram colors?

The histogram colors indicate both the direction of the trend and its acceleration. Bright green indicates positive momentum increasing, while bright red indicates negative momentum increasing.

On which timeframe is this strategy most effective?

The strategy was originally optimized for the 8h timeframe on BTC or ETH pairs, but it can be adapted to other assets by adjusting the RS and MACD lengths.

How can I access the MACD of Relative Strenght Strategy?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.