Moving Average Crossover Trading
- Thread starter smallStops
- Start date
The OP stated that he wanted to see how simple methods worked. The only simple method I know besides MA crossovers is Donchian channel breakouts.
Do you know any others?
The bottom line is surely maximising profit whether by simple or more complex means isn't it ?
For instance A crossing B for entry and C crossing D for exit.
Nothing more simple than tossing a coin I suppose.
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The reason moving average cross-overs does not work, or more generally TA is because price moves are pretty close to a random walk process. I say pretty close, because the log normal distribution of price always has some amount of skew and kurtosis in it. Thus, while price may not be perfectly random, it is too random for TA to really be effective.
Otherwise, if a MA crossover method worked, somebody decades ago would have used it and all the money in the market would have flowed to them, and the markets would have ceased to exist. Anyhow, prove it to yourself by doing some proper back testing.
Otherwise, if a MA crossover method worked, somebody decades ago would have used it and all the money in the market would have flowed to them, and the markets would have ceased to exist. Anyhow, prove it to yourself by doing some proper back testing.
Your assumptions are flawed. To say a trading system works doesn't mean it works perfectly and can thus destroy the market. DCBs are the main components of the Turtle trading system and it made the Turtles into millionaires but the markets are still here.
I read with great interests the comments about moving average crossover.
My aim being to trade in a very lazy way, I am going to stick to price crossing/touching just one moving average only.
Also, to guarranty an easy way to trade, I will be trading intraday, but not taking a trade everyday.
Time Frame, and moving average value : these are the 2 things I have to choose.
All on forex.
Laziness : art of getting a rest before the effort.
So time for a break.
My aim being to trade in a very lazy way, I am going to stick to price crossing/touching just one moving average only.
Also, to guarranty an easy way to trade, I will be trading intraday, but not taking a trade everyday.
Time Frame, and moving average value : these are the 2 things I have to choose.
All on forex.
Laziness : art of getting a rest before the effort.
So time for a break.
Too lazy. Using MA1 as your fast average pretty much restricts your slow average to MA100 or slower to avoid being whipsawed to shreds right away. "Very lazy" and successful trading are pretty much polar opposites, so why bother? If you're serious about seeing if there's any value to moving average crossovers, you're going to have to go beyond MA1 as your fast MA. I strongly suggest a backtest to get you in the ballpark of optimal MA lengths before real-time trading.
I would assume trading the Lazy way is actually synonymous with simplicity, and not laziness, or laxness.
Some good comments were offered IMO-
Backtest your approach- Start there certainly!
Use Multiple time frames- I would assume that you would establish trend in a higher time frame and trade the resumption of the corresponding swings in a faster time frame? How will you determine when the trend has paused and your crossover is in a sideways consolidation and ignore the 'new' cross- What will you use to supplement the decision process of a ma cross to reduce the chop in a non trending market? Will you have the ability to step back to the larger time frame and hold your position as long as the primary trend is intact? You will be trading in 3 conditions? Trending Up, sideways consolidation/ trending Down? This is where understanding TREND means looking at the bigger picture.
This is a simple concept -IMO- but too many are sold on the idea of quick daily short term gains as the way to financial success/wealth- Personally, i don't measure up in the short term trading aisles.
While i know nothing about the instrument you may be trading, will you only be trading Intraday, and closing each position daily? Or do you foresee holding a partial longer term CORE position? Does your instrument support a longer term trend direction? Would that possibly be beneficial ? Would you not defer to alter your position dependant on the price direction within the higher time frame?
MA crossovers are the watchdogs of trend trading- The faster the crossover, the closer to price action, the more volatile are the signals- Stepping back in a higher time frame can give a completely different perspective. A wider perspective and more appropriate as to the condition of the overall trend direction-
And, after all, that is what MA's are all about is signaling changes in trend. Unfortunately, that fast time frame trend change does not always see- or portend - the same trend change on the higher time frame- The higher time frame dominates- until it no longer does- with the increased % loss associated.......with being reliant upon it.
I am posting this commentary on ET tonight simply because a fellow trader/investor had found himself at a crossroads due to the market's price action this week- and our discussion was concerning how the faster chart picture (daily/hourly) certainly was 'volatile' , while the Weekly picture was still suggesting the uptrend is indeed still intact, but doing a normal 'Pause'.
And your thread caught my attention- I would agree- KISS- kEEP IT AS simple AS YOU CAN!
But, you will have to add a discretionary element or another technical to your process to reduce whipsaws. It is not so Simple as a MA cross..........You will need a determination of a lagging trend or period of consolidation to reduce the whipsaws- and possibly a lag in your reentry to improve getting multiple stop-outs.
i would assume that you would always favor a resumption of the longer trend trade as having a higher
probability- until that trend has broken definitively to the down side.
I would also assume that you would identify a sideways trend as not particularly viable unless it was overtly wide and still seek trend confirmation. Perhaps this could best be accounted for by a reduced position size if questionable? A reduced initial entry in a wide consolidation should favor the primary trend direction would be my hypothesis- and particularly at the lower end of the consolidation- Watch for the drop kick lower to run stops and a continuation of the prevailing trend higher . All of this requires a great deal of finesse & experience- which I suspect few traders can execute- repeatedly-
If you have a hypothetical chart to illustrate your entry/ exit/ pause approach, i am sure you would get much constructive analysis from the members.
i think I am a fan of Tom Landry- Trade the trend, take initial partial profits, and let the remainder stay above the entry (with a stop) for a longer term gain. It's about as Simple an approach as it gets! One is always deceived by how long the truly long term trends can last. It is the mindset that we are programmed to respond to by financial TV- Bloomberg/ CNBC etc-
I think I hold a greater awareness today than i did yesterday- One can select a plan that works well in this market- the here and now- or one can select a plan that will survive a longer term market-
Does your trading strategy go back to 2007? Why do you not think the market will revisit that type of
downward movement in the months or years ahead? Backtest your approach back through that era when BRKB- the epitome of value investment lost 55%!
If any of my comments are beneficial, please apply them.
SD
Some good comments were offered IMO-
Backtest your approach- Start there certainly!
Use Multiple time frames- I would assume that you would establish trend in a higher time frame and trade the resumption of the corresponding swings in a faster time frame? How will you determine when the trend has paused and your crossover is in a sideways consolidation and ignore the 'new' cross- What will you use to supplement the decision process of a ma cross to reduce the chop in a non trending market? Will you have the ability to step back to the larger time frame and hold your position as long as the primary trend is intact? You will be trading in 3 conditions? Trending Up, sideways consolidation/ trending Down? This is where understanding TREND means looking at the bigger picture.
This is a simple concept -IMO- but too many are sold on the idea of quick daily short term gains as the way to financial success/wealth- Personally, i don't measure up in the short term trading aisles.
While i know nothing about the instrument you may be trading, will you only be trading Intraday, and closing each position daily? Or do you foresee holding a partial longer term CORE position? Does your instrument support a longer term trend direction? Would that possibly be beneficial ? Would you not defer to alter your position dependant on the price direction within the higher time frame?
MA crossovers are the watchdogs of trend trading- The faster the crossover, the closer to price action, the more volatile are the signals- Stepping back in a higher time frame can give a completely different perspective. A wider perspective and more appropriate as to the condition of the overall trend direction-
And, after all, that is what MA's are all about is signaling changes in trend. Unfortunately, that fast time frame trend change does not always see- or portend - the same trend change on the higher time frame- The higher time frame dominates- until it no longer does- with the increased % loss associated.......with being reliant upon it.
I am posting this commentary on ET tonight simply because a fellow trader/investor had found himself at a crossroads due to the market's price action this week- and our discussion was concerning how the faster chart picture (daily/hourly) certainly was 'volatile' , while the Weekly picture was still suggesting the uptrend is indeed still intact, but doing a normal 'Pause'.
And your thread caught my attention- I would agree- KISS- kEEP IT AS simple AS YOU CAN!
But, you will have to add a discretionary element or another technical to your process to reduce whipsaws. It is not so Simple as a MA cross..........You will need a determination of a lagging trend or period of consolidation to reduce the whipsaws- and possibly a lag in your reentry to improve getting multiple stop-outs.
i would assume that you would always favor a resumption of the longer trend trade as having a higher
probability- until that trend has broken definitively to the down side.
I would also assume that you would identify a sideways trend as not particularly viable unless it was overtly wide and still seek trend confirmation. Perhaps this could best be accounted for by a reduced position size if questionable? A reduced initial entry in a wide consolidation should favor the primary trend direction would be my hypothesis- and particularly at the lower end of the consolidation- Watch for the drop kick lower to run stops and a continuation of the prevailing trend higher . All of this requires a great deal of finesse & experience- which I suspect few traders can execute- repeatedly-
If you have a hypothetical chart to illustrate your entry/ exit/ pause approach, i am sure you would get much constructive analysis from the members.
i think I am a fan of Tom Landry- Trade the trend, take initial partial profits, and let the remainder stay above the entry (with a stop) for a longer term gain. It's about as Simple an approach as it gets! One is always deceived by how long the truly long term trends can last. It is the mindset that we are programmed to respond to by financial TV- Bloomberg/ CNBC etc-
I think I hold a greater awareness today than i did yesterday- One can select a plan that works well in this market- the here and now- or one can select a plan that will survive a longer term market-
Does your trading strategy go back to 2007? Why do you not think the market will revisit that type of
downward movement in the months or years ahead? Backtest your approach back through that era when BRKB- the epitome of value investment lost 55%!
If any of my comments are beneficial, please apply them.
SD
I spent a long time on crosses and sad to say, it won't get you there, too complicated think simpler.
I just trade off a 9 sma envelope 0.003 or 0.03, when it's got a direction enter with its direction near its lows and ride the momentum, faster reacting than a cross over.
Also the 5 min rule, if markets fails to make new high/lows for atleast 5 mins, odds are direction will turn, tight SL, use the 9 to hold longer.
On the ipad, screen shots last page of my Journal, tested on DAX and YM vaguely i will admit lol
I just trade off a 9 sma envelope 0.003 or 0.03, when it's got a direction enter with its direction near its lows and ride the momentum, faster reacting than a cross over.
Also the 5 min rule, if markets fails to make new high/lows for atleast 5 mins, odds are direction will turn, tight SL, use the 9 to hold longer.
On the ipad, screen shots last page of my Journal, tested on DAX and YM vaguely i will admit lol