CMT Technician, Alex Spiroglou’s, MACD Screener

Alex Spiroglou, a member of the Chartered Market Technician (CMT) Association, created a smoothed version of the MACD indicator that can help investors latch on to trending stocks. He was awarded the Charles H. Dow Award from the association in 2022 for his excellent research.

Note that Alex created his MACD version for the American market, which is extremely liquid, unlike our Indian market.

Alex Spiroglou’s objective was to cut out all the noise and false signals that the MACD line and the MACD Signal Line generate when they cross over. Many of you would have experienced that MACD Line-Signal Line crossovers generate false positives, and this screener can help you get less-noisy signals.

STEP 1: Smoothing The MACD 

Alex has smoothed the MACD Line (26,12,9) by linking it to a volatility indicator (ATR (26). His formula is:

(MACD ➗ ATR (26)) ✖100 {Period implied is DAY)

This is what this translates to:

The MACD line is the 12-Period 12 EMA (–) 26-Period EMA. When you deduct the longer trend from the shorter trend, you get to know the absolute current trend. So if the MACD value is positive, it means that the 12-Period EMA is greater than the 26-Period EMA, and vice versa.

The ATR measures volatility – it is the absolute value by which a stock price can move during a period. For example, HBL Power’s DAY ATR (26) is about Rs 5. This means that the stock price can fluctuate about Rs 5 for the current day. You may be knowing that when volatility falls, the stock price rises, and when volatility increases, investors usually get nervous and sell the stock. This is amply made clear in the chart below:

If we apply Alex’s formula to HBL Power, we get:

(0.54* ➗ 5) ✖100 (Current MACD Value) = 10.8

*HBL Power’s current MACD value

So, Alex Spiroglou’s MACD-smoothing produces an indicator that alerts investors when the current trend (MACD Line) rises and volatility falls. Note that the MACD Line is the numerator and therefore a rising MACD Line suggests the stock price is rising. 

Likewise, the ATR (26) is a measurement of volatility, and it is the denominator in Alex’s formula. So if the denominator’s value reduces, it suggests volatility is falling. 

Consequently, Alex’s version of the MACD increases OR starts rising period-over-period when the stock enters a bull run. His indicator can be negative (when the MACD Line is negative). As the indicator’s values get higher, momentum picks up.

So, the screener formula for this part is: 

(DAY) MACD Line ( 26,12,9 ) / Latest Avg True Range ( 26 ) ) * 100 > 0 (to know that the stock is in a bullish trend) 

To this, I would add:

(DAY) MACD Line ( 26,12,9 ) / Latest Avg True Range ( 26 ) ) * 100 < 5  (to ensure that the stock has not zoomed like crazy, and to try to catch it young)

Filters I Would Add To Alex Spiroglou’s MACD Version

Latest Volume > 1 day ago Volume (to ensure that the rise in price is backed by rising volumes)

So, the full screener works out to:

(DAY) MACD Line ( 26,12,9 ) / Latest Avg True Range ( 26 ) ) * 100 > 0 

and

(DAY) MACD Line ( 26,12,9 ) / Latest Avg True Range ( 26 ) ) * 100 < 5 

and

Latest Volume > 1 day ago Volume

Optionally, to make certain that the stock is indeed in a bull zone, you can add:

Latest Macd Line ( 26,12,9 ) > Latest Macd Signal ( 26,12,9 ) 

Backtesting Alex Spirgolou’s MACD Version

After getting the stock picks, I would head to the charts, draw a trendline, and resistance and support lines, either to ensure that the stock is bullish or get levels at which it can turn bullish.

I have not fully backtested this screener. Will appreciate your help in testing it and dropping in a comment. Thanks. 

Here’s the screener link:

Update: I tried the screener in the Indian stock market and it is successful 60% of the time. However, if the stock is in an uptrend, then the success percentage rises. Anyway, I guess this screen works great for US equities, and therefore have deleted the test screener link. You can anyway recreate it using the formula above.