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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 = 2
    • StopLossPercent = 2
    • CandleType = TimeSpan.FromMinutes(5) Avg and StdDev are the average and the standard deviation of the last AveragePeriod MACD histogram values, the current one included. The stop is a fixed StopLossPercent of the entry price, watched between candles as well; 0 disables it. An entry signal against an open position reverses it.
  • Filters:
    • Category: Mean Reversion
    • Direction: Both
    • Indicators: MACD
    • Stops: Yes
    • Complexity: Intermediate
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: No
    • Risk Level: Medium
using System;
using System.Collections.Generic;
using System.Linq;

using Ecng.Common;

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

namespace StockSharp.Samples.Strategies;

/// <summary>
/// MACD Mean Reversion strategy.
/// The bands lie DeviationMultiplier standard deviations around the average of the last AveragePeriod histogram values, the current one included.
/// histogram below the lower band goes long and histogram above the upper band goes short,
/// reversing an opposite position. A long closes once histogram is back above its average and a short once it is back below it, and a percent stop limits the loss.
/// </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<decimal> _stopLossPercent;
	private readonly StrategyParam<DataType> _candleType;

	private readonly Queue<decimal> _values = [];

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

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

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

	/// <summary>
	/// Values of histogram the average and the standard deviation span.
	/// </summary>
	public int AveragePeriod
	{
		get => _averagePeriod.Value;
		set => _averagePeriod.Value = value;
	}

	/// <summary>
	/// Standard deviations between the average and a band.
	/// </summary>
	public decimal DeviationMultiplier
	{
		get => _deviationMultiplier.Value;
		set => _deviationMultiplier.Value = value;
	}

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

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

	/// <summary>
	/// Constructor.
	/// </summary>
	public MacdMeanReversionStrategy()
	{
		_fastMacdPeriod = Param(nameof(FastMacdPeriod), 12)
			.SetGreaterThanZero()
			.SetDisplay("MACD Fast", "Fast EMA period of MACD", "Indicators");

		_slowMacdPeriod = Param(nameof(SlowMacdPeriod), 26)
			.SetGreaterThanZero()
			.SetDisplay("MACD Slow", "Slow EMA period of MACD", "Indicators");

		_signalPeriod = Param(nameof(SignalPeriod), 9)
			.SetGreaterThanZero()
			.SetDisplay("MACD Signal", "Signal line period of MACD", "Indicators");

		_averagePeriod = Param(nameof(AveragePeriod), 20)
			.SetGreaterThanZero()
			.SetDisplay("Average Period", "Values of histogram the average and the standard deviation span", "Indicators");

		_deviationMultiplier = Param(nameof(DeviationMultiplier), 2m)
			.SetGreaterThanZero()
			.SetDisplay("Multiplier", "Standard deviations between the average and a band", "Indicators");

		_stopLossPercent = Param(nameof(StopLossPercent), 2m)
			.SetNotNegative()
			.SetDisplay("Stop Loss %", "Stop loss percentage from entry price", "Risk");

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

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

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_values.Clear();
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		_values.Clear();

		var macd = new MovingAverageConvergenceDivergenceSignal
		{
			Macd =
			{
				ShortMa = { Length = FastMacdPeriod },
				LongMa = { Length = SlowMacdPeriod },
			},
			SignalMa = { Length = SignalPeriod }
		};

		var subscription = SubscribeCandles(CandleType);
		subscription
			.BindEx(macd, ProcessCandle)
			.Start();

		StartProtection(new Unit(), new Unit(StopLossPercent, UnitTypes.Percent), useMarketOrders: true, isLocalStop: true);

		// The stop has to see prices between candles, not only at their close.
		foreach (var field in new[] { Level1Fields.BestBidPrice, Level1Fields.BestAskPrice })
		{
			var quotes = new Subscription(DataType.Level1, Security);
			quotes.MarketData.BuildField = field;
			SubscribeLevel1(quotes).Bind(ObserveProtectionQuote).Start();
		}

		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawOwnTrades(area);

			var oscillators = CreateChartArea();
			if (oscillators != null)
			{
				DrawIndicator(oscillators, macd);
			}
		}
	}

	private void ObserveProtectionQuote(Level1ChangeMessage quote)
	{
		// The high-level handler activates native protection before this callback, also between signal bars.
	}

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

		if (!macdValue.IsFormed || macdValue is not MovingAverageConvergenceDivergenceSignalValue { Macd: decimal macd, Signal: decimal signal })
			return;

		// The histogram is the MACD line minus its signal line.
		var value = macd - signal;

		_values.Enqueue(value);

		if (_values.Count > AveragePeriod)
			_values.Dequeue();

		if (_values.Count < AveragePeriod)
			return;

		if (!IsFormedAndOnlineAndAllowTrading())
			return;

		var mean = _values.Average();
		var deviation = (decimal)Math.Sqrt((double)_values.Average(v => (v - mean) * (v - mean)));
		var upper = mean + DeviationMultiplier * deviation;
		var lower = mean - DeviationMultiplier * deviation;

		if (value < lower && Position <= 0)
			BuyMarket(Volume + Math.Abs(Position));
		else if (value > upper && Position >= 0)
			SellMarket(Volume + Math.Abs(Position));
		else if (Position > 0 && value > mean)
			SellMarket(Position);
		else if (Position < 0 && value < mean)
			BuyMarket(-Position);
	}
}