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MACD Mean Reversion Strategy

This method tracks the MACD histogram relative to its own average. Extreme histogram readings often revert once momentum subsides. By monitoring the difference between MACD and its signal line, the strategy finds overextended moves.

Testing indicates an average annual return of about 67%. It performs best in the stocks market.

A long position is entered when the MACD histogram falls below the mean by DeviationMultiplier standard deviations. A short position is opened when the histogram rises above the mean by the same amount. The trade is closed when the histogram crosses back through its average.

This approach caters to traders comfortable fading momentum extremes. A stop-loss measured as a percentage of entry price guards against trends that continue to strengthen.

Details

  • Entry Criteria:
    • Long: MACD Histogram < Avg - DeviationMultiplier * StdDev
    • Short: MACD Histogram > Avg + DeviationMultiplier * StdDev
  • Long/Short: Both sides.
  • Exit Criteria:
    • Long: Exit when Histogram > Avg
    • Short: Exit when Histogram < Avg
  • Stops: Yes, percent stop-loss.
  • Default Values:
    • FastMacdPeriod = 12
    • SlowMacdPeriod = 26
    • SignalPeriod = 9
    • AveragePeriod = 20
    • DeviationMultiplier = 2m
    • CandleType = TimeSpan.FromMinutes(5)
  • Filters:
    • Category: Mean Reversion
    • Direction: Both
    • Indicators: MACD
    • Stops: Yes
    • Complexity: Intermediate
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: No
    • Risk Level: Medium
namespace StockSharp.Samples.Strategies;

using System;
using System.Collections.Generic;

using Ecng.Common;

using StockSharp.Algo;
using StockSharp.Algo.Candles;
using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

/// <summary>
/// MACD Histogram Mean Reversion strategy.
/// This strategy enters positions when MACD Histogram is significantly below or above its average value.
/// </summary>
public class MacdMeanReversionStrategy : Strategy
{
	private readonly StrategyParam<int> _fastMacdPeriod;
	private readonly StrategyParam<int> _slowMacdPeriod;
	private readonly StrategyParam<int> _signalPeriod;
	private readonly StrategyParam<int> _averagePeriod;
	private readonly StrategyParam<decimal> _deviationMultiplier;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<decimal> _stopLossPercent;

	private decimal _prevMacdHist;
	private decimal _avgMacdHist;
	private decimal _stdDevMacdHist;
	private decimal _sumMacdHist;
	private decimal _sumSquaresMacdHist;
	private int _count;
	private readonly Queue<decimal> _macdHistValues = [];

	/// <summary>
	/// Fast EMA period for MACD.
	/// </summary>
	public int FastMacdPeriod
	{
		get => _fastMacdPeriod.Value;
		set => _fastMacdPeriod.Value = value;
	}

	/// <summary>
	/// Slow EMA period for MACD.
	/// </summary>
	public int SlowMacdPeriod
	{
		get => _slowMacdPeriod.Value;
		set => _slowMacdPeriod.Value = value;
	}

	/// <summary>
	/// Signal line period for MACD.
	/// </summary>
	public int SignalPeriod
	{
		get => _signalPeriod.Value;
		set => _signalPeriod.Value = value;
	}

	/// <summary>
	/// Period for calculating mean and standard deviation of MACD Histogram.
	/// </summary>
	public int AveragePeriod
	{
		get => _averagePeriod.Value;
		set => _averagePeriod.Value = value;
	}

	/// <summary>
	/// Deviation multiplier for entry signals.
	/// </summary>
	public decimal DeviationMultiplier
	{
		get => _deviationMultiplier.Value;
		set => _deviationMultiplier.Value = value;
	}

	/// <summary>
	/// Candle type.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Stop-loss percentage.
	/// </summary>
	public decimal StopLossPercent
	{
		get => _stopLossPercent.Value;
		set => _stopLossPercent.Value = value;
	}

	/// <summary>
	/// Constructor.
	/// </summary>
	public MacdMeanReversionStrategy()
	{
		_fastMacdPeriod = Param(nameof(FastMacdPeriod), 12)
			.SetGreaterThanZero()
			
			.SetOptimize(8, 16, 4)
			.SetDisplay("Fast EMA Period", "Fast EMA period for MACD", "Indicators");

		_slowMacdPeriod = Param(nameof(SlowMacdPeriod), 26)
			.SetGreaterThanZero()
			
			.SetOptimize(20, 30, 5)
			.SetDisplay("Slow EMA Period", "Slow EMA period for MACD", "Indicators");

		_signalPeriod = Param(nameof(SignalPeriod), 9)
			.SetGreaterThanZero()
			
			.SetOptimize(5, 13, 4)
			.SetDisplay("Signal Period", "Signal line period for MACD", "Indicators");

		_averagePeriod = Param(nameof(AveragePeriod), 20)
			.SetGreaterThanZero()
			
			.SetOptimize(10, 50, 10)
			.SetDisplay("Average Period", "Period for calculating MACD Histogram average", "Settings");

		_deviationMultiplier = Param(nameof(DeviationMultiplier), 2m)
			.SetGreaterThanZero()
			
			.SetOptimize(1.5m, 3m, 0.5m)
			.SetDisplay("Deviation Multiplier", "Multiplier for standard deviation", "Settings");

		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(5).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");

		_stopLossPercent = Param(nameof(StopLossPercent), 2m)
			.SetGreaterThanZero()
			
			.SetOptimize(1m, 3m, 0.5m)
			.SetDisplay("Stop Loss %", "Stop loss as percentage of entry price", "Risk Management");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return [(Security, CandleType)];
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_prevMacdHist = 0;
		_avgMacdHist = 0;
		_stdDevMacdHist = 0;
		_sumMacdHist = 0;
		_sumSquaresMacdHist = 0;
		_count = 0;
		_macdHistValues.Clear();
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		// Reset variables

		// Create MACD indicator
		var macd = new MovingAverageConvergenceDivergenceHistogram
		{
			Macd =
			{
				ShortMa = { Length = FastMacdPeriod },
				LongMa = { Length = SlowMacdPeriod },
			},
			SignalMa = { Length = SignalPeriod }
		};

		var macdHistogram = new MovingAverageConvergenceDivergenceHistogram(macd.Macd, new());

		// Create subscription and bind indicator
		var subscription = SubscribeCandles(CandleType);
		subscription
			.BindEx(macdHistogram, ProcessCandle)
			.Start();

		// Setup chart visualization
		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawIndicator(area, macd);
			DrawIndicator(area, macdHistogram);
			DrawOwnTrades(area);
		}

		// Enable position protection
		StartProtection(
			takeProfit: new Unit(0m), // We'll manage exits ourselves based on MACD Histogram
			stopLoss: new Unit(StopLossPercent, UnitTypes.Percent)
		);

		base.OnStarted2(time);
	}

	private void ProcessCandle(ICandleMessage candle, IIndicatorValue macdValue)
	{
		// Skip unfinished candles
		if (candle.State != CandleStates.Finished)
			return;

		// Check if strategy is ready to trade
		if (!IsFormedAndOnlineAndAllowTrading())
			return;

		// Extract MACD Histogram value
		var macdTyped = (MovingAverageConvergenceDivergenceHistogramValue)macdValue;
		if (macdTyped.Macd is not decimal macd || macdTyped.Signal is not decimal signal)
		{
			return;
		}

		// Update MACD Histogram statistics
		UpdateMacdHistStatistics(macd);

		// Save current MACD Histogram for next iteration
		_prevMacdHist = macd;

		// If we don't have enough data yet for statistics
		if (_count < AveragePeriod)
			return;

		// Check for entry conditions
		if (Position == 0)
		{
			// Long entry - MACD Histogram is significantly below its average
			if (macd < _avgMacdHist - DeviationMultiplier * _stdDevMacdHist)
			{
				BuyMarket(Volume);
				LogInfo($"Long entry: MACD Hist = {macd}, Avg = {_avgMacdHist}, StdDev = {_stdDevMacdHist}");
			}
			// Short entry - MACD Histogram is significantly above its average
			else if (macd > _avgMacdHist + DeviationMultiplier * _stdDevMacdHist)
			{
				SellMarket(Volume);
				LogInfo($"Short entry: MACD Hist = {macd}, Avg = {_avgMacdHist}, StdDev = {_stdDevMacdHist}");
			}
		}
		// Check for exit conditions
		else if (Position > 0) // Long position
		{
			if (macd > _avgMacdHist)
			{
				ClosePosition();
				LogInfo($"Long exit: MACD Hist = {macd}, Avg = {_avgMacdHist}");
			}
		}
		else if (Position < 0) // Short position
		{
			if (macd < _avgMacdHist)
			{
				ClosePosition();
				LogInfo($"Short exit: MACD Hist = {macd}, Avg = {_avgMacdHist}");
			}
		}
	}

	private void UpdateMacdHistStatistics(decimal currentMacdHist)
	{
		// Add current value to the queue
		_macdHistValues.Enqueue(currentMacdHist);
		_sumMacdHist += currentMacdHist;
		_sumSquaresMacdHist += currentMacdHist * currentMacdHist;
		_count++;

		// If queue is larger than period, remove oldest value
		if (_macdHistValues.Count > AveragePeriod)
		{
			var oldestMacdHist = _macdHistValues.Dequeue();
			_sumMacdHist -= oldestMacdHist;
			_sumSquaresMacdHist -= oldestMacdHist * oldestMacdHist;
			_count--;
		}

		// Calculate average and standard deviation
		if (_count > 0)
		{
			_avgMacdHist = _sumMacdHist / _count;
			
			if (_count > 1)
			{
				var variance = (_sumSquaresMacdHist - (_sumMacdHist * _sumMacdHist) / _count) / (_count - 1);
				_stdDevMacdHist = variance <= 0 ? 0 : (decimal)Math.Sqrt((double)variance);
			}
			else
			{
				_stdDevMacdHist = 0;
			}
		}
	}
}