Roku Inc (NASDAQ:ROKU) and Technical Analysis: Using MACD and RSI to Find a Bullish Trigger
Date Published: 2020-07-30
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LedeAfter rigorous testing over multiple time periods, today we examine the technical conditions that have provided a strong intermediate-term bullish trigger for Roku Inc (NASDAQ:ROKU) using MACD and RSI.
Preface: Using Charts and Computations Simultaneously to Use a MACD and RSI TriggerRather than "draw lines on that chart that time," we tested a specific Moving Average Convergence Divergence (MACD) and RSI set-up, across more than a decade of data.
In this case we identified two requirements. This doesn't mean it's a trigger now, it means when it has happened, that has led to historically good returns, and in particular, good risk adjusted returns.
These are the two technical requirements, both which must be met for an open to the backtest:
Here is the set-up in Stock TradeMachine®.
Translated from an image into words:
1. Wait until the day that the 14-day RSI dips below 40.
-- AND --
2. The standard MACD is above the 9-day EMA signal line.
The closing rule also has two pieces.
1. The backtest is closed when the 14-day RSI crosses back above 70
-- OR --
2. 22-trading days have past.
Whichever of these two conditions occurs first triggers a close.
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CML Efficiency Score™At Capital Market Laboratories (CMLviz), we created a standardized reward to risk measurement for backtests called the CML Efficiency Score™ (ES).
The ES takes the average trade return from each triggered backtest (the 'reward') and divides it by the maximum drawdown (the risk).
The max drawdown is measured as the largest open-to-trough decline in the value of a backtest for each new opening trade.
Our view is that an CML Efficiency Score above 0.8 is very good and above 1.0 is excellent. A number above 1.0 indicates that the average return is in fact larger than the maximum realized loss.
5-Year Backtest Results: A MACD and RSI Trigger in Roku IncHere are the results of a long stock position held for 22 trading days tested over the last 5-years in Roku Inc once the two technical requirements have been met:
The mechanics of the Stock TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
We see 2 wins and 0 losses with a total backtest return of 60.1%.
We note an CML Efficiency Score™ above 0.80, which is quite strong.
One-Year Backtest Results: A MACD and RSI Trigger in Roku IncHere are the results of that same trigger, but focused one just the last year:
We note that the CML Efficiency Score reads 'max', which means that at no point during any of the triggered trades was there a drawdown below the opening price.
This makes the ES calculation the average backtest return / 0, which is undefined, or 'max.' It's certainly above 1.0.
Next StepsIf you use Technical Analysis, do it right. Stock TradeMachine is free: Tap here to try it.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.