MACD Strategy

Explanation & Rationale

The MACD Crossover strategy uses the Moving Average Convergence Divergence (MACD) indicator to identify changes in market momentum. A buy signal is generated when the MACD crosses above the signal line, indicating increasing upward momentum, while a sell signal occurs when the MACD crosses below the signal line, signaling potential downward movement. This strategy focuses on the convergence and divergence of two EMAs, helping traders capture trends and reversals in a market.

Code

'''
MACD Crossover Strategy.

Buy when the MACD crosses above the signal line.
Short when the MACD crosses below the signal line.
This strategy uses the MACD for identifying momentum changes.
Learn more @ docs.ubacktest.com/examples/moving-averages/macd
'''

import pandas as pd

def calculate_macd(series, short_window=12, long_window=26, signal_window=9):

    # generate two MAs and return the smoothed difference as a signal line
    short_ema = series.ewm(span=short_window, adjust=False).mean()
    long_ema = series.ewm(span=long_window, adjust=False).mean()
    macd = short_ema - long_ema

    signal = macd.ewm(span=signal_window, adjust=False).mean()
    return macd, signal

def strategy(data):
    data['MACD'], data['Signal_Line'] = calculate_macd(data['close'])

    # Generate signals based on MACD crossover
    data['signal'] = 0
    data.loc[data['MACD'] > data['Signal_Line'], 'signal'] = 1  # Buy
    data.loc[data['MACD'] < data['Signal_Line'], 'signal'] = -1 # Short

    return data