MACD: what it's actually best at

391 of 1,815 out-of-sample tests beat simply buying and holding the same asset — 21.5%. On the other 1,424 it did not. That is indistinguishable from the 20.1% rate across all 382 indicators we test (one pooled rate over all 660,005 tests we have run, not a mean of the per-indicator rates) — the difference is inside the margin this many tests can resolve, so read it as ordinary, not better or worse.

Each test is one asset on one timeframe: 1,815 of them, drawn from 898 assets across up to 4 timeframes. Not every asset has usable history on every timeframe, so that total is the grid we could actually run — it is not 898 × 4, and we do not pad it with tests we did not do. "Beat" means a higher return than holding that same asset over that same window. Measured out-of-sample — on data the setup was not chosen on.

Picking the single best timeframe for each asset after the fact raises it to 30.6% (275/898 assets). That number is the one worth distrusting: choosing the timeframe once you already know the answer is how backtests flatter themselves. Every indicator, ranked by this number

MACD (Moving Average Convergence/Divergence) is the difference between two exponential moving averages of price — conventionally the 12-period minus the 26-period. That difference is the MACD line. A 9-period EMA of the MACD line is drawn on top of it as the signal line, and the bars beneath (the histogram) are simply MACD line minus signal line. Because it is a gap between two averages of different lengths, it is positive when the shorter average is above the longer one — i.e. when recent prices are pulling away from older ones — and it converges toward zero as that gap closes.

How it's read. Two readings are conventional. A crossover: the MACD line rising through the signal line is read as strengthening upside momentum, and falling through it the reverse. A zero-line cross: MACD moving above zero means the 12-period EMA has overtaken the 26-period. Divergence — price making a new high while MACD does not — is read as momentum failing to confirm the move.

Where it struggles by design. It is built from moving averages, so it lags by construction and it has no upper or lower bound: unlike an oscillator that pins between 0 and 100, MACD cannot tell you 'overbought' on its own. In a sideways market the two EMAs cross repeatedly and the crossover reading produces a stream of signals in both directions.

Origin: Devised by Gerald Appel in the late 1970s; the histogram was added by Thomas Aspray in 1986.