The Approach That Normalizes Momentum by Volatility: Introducing MACD-V.
- FinancialWisdom
- Sep 28
- 8 min read
Updated: 5 days ago
What if I told you that the MACD indicator—one of the most trusted momentum tools in technical analysis—has critical flaws? These flaws have cost traders money for over 40 years. Fortunately, there's a revolutionary solution that won the prestigious CMT Association Charles Dow Award in 2022.
In this video, we introduce the MACD-V indicator. This breakthrough transforms the classic MACD into a precision timing tool that works across any market and timeframe.
Understanding MACD and Its Limitations
Before we delve deeper, I want to clarify something: I rely on MACD extensively. It plays a crucial role in my entry criteria and exit management. The limitations discussed in this video don’t affect my process. I use many other variables alongside MACD to form my entry decisions. For exits, our focus is on detecting changes in momentum. That’s something MACD captures exceptionally well in its purest form.
The refined indicator, MACD-V, took eight years to develop. It earned recognition from two of the most prestigious technical analysis organizations in the world. Alex Spiroglou's groundbreaking work won both the CMT Association's Charles Dow Award and the National Association of Active Investment Managers' Founders Award in 2022. Achievements like these are rare, accomplished by fewer than 20 people globally.
By the end of this video, you will understand why your MACD signals have been inconsistent. You will learn why the same MACD reading can mean completely different things in different markets. Most importantly, you will discover how MACD-V creates what’s called the "Momentum Lifecycle Roadmap." This roadmap delivers consistent, actionable signals across all securities and timeframes.
The Five Limitations of MACD
We will examine each of the five MACD limitations. We will reveal how MACD-V’s volatility normalization solves these problems. Additionally, we will show you real trading results that demonstrate the dramatic improvement in performance.
Gerald Appel's MACD indicator revolutionized momentum analysis when it debuted in the late 1970s. The formula is elegantly simple: take a 12-period EMA, subtract a 26-period EMA, add a 9-period signal line, and you have a trend-following momentum indicator. This indicator captures market acceleration and deceleration.
However, the MACD has five critical limitations that make it unreliable for consistent trading results. These limitations affect traders who depend solely on the indicator for their trading signals. Let’s explore these limitations in detail.
Limitation 1: The MACD Isn't Comparable Across Time
This is perhaps the most shocking discovery. MACD readings from different time periods are mathematically meaningless to compare, even for the same security.
Here are the actual numbers from the S&P 500:
1957-1971: MACD maximum was 1.56, minimum was -3.3
2019-2021: MACD maximum was 86.31, minimum was -225.40
Does this mean the market had 55 times more momentum in 2021 than in 1971? Absolutely not. The difference exists purely because the MACD is an "absolute price indicator." It depends on the underlying security's price level when calculated.
This creates a significant problem: you cannot compare today's MACD reading with last year's reading, let alone readings from a decade ago. Any historical analysis becomes meaningless, and backtesting results are fundamentally flawed.
Limitation 2: The MACD Isn't Comparable Across Markets
The second limitation stems directly from the first. If MACD readings aren't stable across time, they certainly can't be compared across different securities.
Consider this real example: the S&P 500's MACD reading might be 65 while the Euro's MACD reading is -0.0070. This doesn't mean the S&P 500 has more momentum. It's simply a function of the different absolute price levels of these securities.
This makes cross-market analysis impossible. You cannot scan for the strongest momentum across a universe of stocks, compare forex pairs, or build relative strength strategies using MACD readings. Each security exists in its own isolated MACD universe.
Limitation 3: No Objective Momentum Framework
Because MACD values aren't comparable across time or markets, you cannot create objective "overbought" or "oversold" levels. Unlike indicators that operate within fixed ranges, the MACD has no universal benchmarks.
This means you cannot systematically define when momentum is "high" versus "low," when markets are "stretched," or when conditions favour mean reversion versus trend continuation. Every MACD analysis becomes subjective and unrepeatable.
Limitation 4: Signal Line Accuracy Problems
The MACD's signal line crossovers—the primary method for generating buy and sell signals—suffer from a critical accuracy problem in low momentum environments.
When markets lack directional conviction, the MACD line hovers near zero and close to the signal line. This creates frequent crossovers that generate numerous false signals. In ranging markets, you might see six or more losing signals in just a few months.
Due to Limitation #3 , you cannot filter these signals by identifying low momentum environments objectively. You're forced to take every signal, including the inevitable whipsaws.
Limitation 5: Signal Line Timing Problems
Conversely, when momentum is extremely high, the MACD line builds significant distance from the signal line. If the market then reverses abruptly—common in V-shaped bottoms—the lagging signal line takes considerable time to catch up.
This creates accurate but late signals. For example, the S&P 500 bottomed at 2,532.69 on February 9, 2018, but the MACD signal didn't trigger until February 23 at 2,747.30—a devastating 8.47% late to the party.
Again, without objective momentum levels, you cannot anticipate these high-momentum environments and adjust your strategy accordingly.
The Solution: MACD-V
It’s not that these limitations were overlooked until now. Recognizing these very limitations, technical analysts created the Percent Price Oscillator (PPO). The logic seemed sound: normalize the MACD by expressing it as a percentage of price.
The PPO formula is:
```
[(12 EMA - 26 EMA) / 26 EMA] × 100
```
This approach does solve Limitation #1. PPO readings become comparable across time for individual securities. For the S&P 500, 95% of PPO values consistently fall between +2% and -2% across decades.
However, the PPO fails spectacularly at solving the other limitations. Different markets require completely different PPO levels:
S&P 500: ±2% for extreme readings
German Bund: ±0.7% for extreme readings
Natural Gas: ±7% for extreme readings
A 0.5% PPO reading indicates strong momentum in the Bund but represents a nearly flat market in the S&P 500. The PPO normalizes by price but ignores the fundamental driver of these differences: volatility.
This is where Alex Spiroglou's eight years of research culminated in a revolutionary insight: instead of normalizing by price, normalize by volatility itself.
The MACD-V formula is elegantly simple:
```
[(12-period EMA - 26-period EMA) / ATR(26)] × 100
```
By dividing the traditional MACD by the Average True Range—Welles Wilder's proven volatility measure—we create something unprecedented in technical analysis: a momentum indicator that solves all five MACD limitations simultaneously.
How MACD-V Solves Limitation 1: Time Stability
Because volatility normalization removes the absolute price component, MACD-V readings become directly comparable across time. A reading of 100 today has the same mathematical meaning as a reading of 100 from 1975.
This enables genuine historical analysis and reliable backtesting. You can finally compare momentum conditions across decades with mathematical precision.
How MACD-V Solves Limitation 2: Cross-Market Comparability
The breakthrough discovery: using the same ±150 extreme levels works across all markets:
S&P 500: 95% of readings fall within ±150
German Bund: 95% of readings fall within ±150
Natural Gas: 95% of readings fall within ±150
For the first time in technical analysis history, we have universal momentum levels that work across stocks, bonds, commodities, currencies, and cryptocurrencies.
How MACD-V Solves Limitation 3: Objective Momentum Framework
With universal levels established, we can create the seven-stage Momentum Lifecycle Roadmap:
Risk Levels (±150): Momentum exceeds 1.5 times volatility—markets are stretched
Strong Momentum (50 to 150, -50 to -150): Sustained directional movement
Neutral Range (-50 to +50): Low momentum, ranging conditions
Specific States: Rallying, Retracing, Rebounding, Reversing, Ranging
Each state has objective mathematical definitions that work universally across all markets and timeframes.
How MACD-V Solves Limitations 4 & 5: Signal Quality
With objective momentum levels, you can now filter signals based on market conditions:
Avoid signals in the neutral range (-50 to +50) where whipsaws dominate
Anticipate timing issues in extreme momentum environments (±150)
Focus on high-probability signals in strong momentum ranges
Through extensive backtesting, Spiroglou discovered something remarkable about how MACD-V behaves in different trend environments. This creates what he calls "Range Rules"—objective guidelines that dramatically improve signal accuracy.
Bullish Regime
The Bullish Regime is defined as the asset trading above the 200-day EMA:
100% of extreme overbought readings (>150) occur in bull markets
0% of extreme oversold readings (<-150) occur in bull markets
99.4% of all readings stay above -100
Therefore, within the bullish stage, the -50 to -150 range becomes a "new" oversold level, capturing 5% of the downside data. This also means in bull markets, any MACD-V reading below -100 is extraordinarily rare and often marks significant buying opportunities.
Bearish Regime
In the Bearish Regime (below 200-day MA) for the S&P 500:
100% of extreme oversold readings (<-150) occur in bear markets
0% of extreme overbought readings (>150) occur in bear markets
99.8% of readings stay below +100
These Range Rules work across all markets and provide precise entry and exit guidelines that were impossible with the classic MACD.
Practical Application of MACD-V
To demonstrate practical application, Spiroglou tested a simple momentum system on DAX futures from 1991-2021:
System Rules:
Enter long when MACD-V exceeds 70 (strong upward momentum)
Exit at 2.85% profit target or after 15 days if profitable
Maximum hold period: 77 days
Results:
201 profitable trades over 30 years
95 trades (77.23%) reached their profit target
Consistent performance across different market cycles
Clear risk management with defined exit rules
Alex states, “This system is not a tradeable system on its own, but serves as inspiration for further strategy idea development.” However, it demonstrates how MACD-V's normalized readings enable systematic, quantified approaches that generate consistent results—something impossible with traditional MACD analysis.
The MACD-V Histogram
The innovation extends to the histogram as well. The MACD-V Histogram (MACD-VH) provides normalized short-term momentum readings with universal extreme levels at ±40.
Unlike traditional histogram analysis that relies on subjective bar-height comparisons, MACD-VH gives you absolute levels that work across all markets. This helps identify short-term stretched conditions and brief reversal opportunities.
Conclusion: A Paradigm Shift in Momentum Analysis
The MACD-V addresses the core problem that undermines most momentum-based strategies: inconsistent, non-comparable readings that make systematic analysis impossible.
With MACD-V, you gain:
Consistent Signal Quality: Universal momentum levels eliminate the guesswork. You know exactly when momentum is strong, weak, or extreme across any market.
Reliable Backtesting: Time-stable readings enable genuine historical analysis and strategy development that actually works in live trading.
Cross-Market Strategies: Compare momentum across different asset classes, build relative strength systems, and diversify using consistent momentum criteria.
Objective Risk Management: Range Rules provide precise guidelines for position sizing, stop placement, and profit-taking based on momentum conditions.
Systematic Approach: Transform subjective MACD analysis into quantified, repeatable strategies that can be programmed, backtested, and optimized.
Most importantly, MACD-V works the same way whether you're trading individual stocks, forex pairs, commodity futures, or cryptocurrency markets. The universal nature of volatility normalization means your momentum analysis skills transfer seamlessly across all asset classes.
The MACD-V isn't just an improvement—it's a complete paradigm shift. It transforms momentum analysis from subjective art into objective science. By normalizing against volatility rather than price, we finally have universal momentum readings that work consistently across all markets and timeframes.
The seven-stage Momentum Lifecycle Roadmap, which is the base of the MACD-V indicator, provides systematic guidelines for every market condition. Meanwhile, the Range Rules offer precise entry and exit criteria that dramatically improve signal quality.
The solution to MACD's limitations wasn't to abandon the indicator but to fix its fundamental mathematical flaw, which MACD-V does exceptionally well.
Remember: momentum is primarily a timing tool. It helps you enter trends at optimal levels, avoid false signals in low-momentum environments, and identify high-probability reversal zones. The MACD-V makes all of this possible with mathematical precision.
For those who want to try the indicator, it’s available on Metastock and Stockcharts Advanced Trading Platform. It will soon be available on other popular charting platforms, including TradingView, MT4, and NinjaTrader. So, try it out and let me know what you think about it in the comments section.
For those interested in using my breakout method and bespoke scanner, why not join us: https://www.financialwisdomtv.com/service
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Thank you, I found it on Tradingview. What are the settings you recommend and which time frame would work best. I trade the SPX