Question about Crossing Moving Average

Mohammed
10
Mohammed  

Hello there

I've recently read about the crossing moving average strategy and decided to take a close look on it. I further thought I could ask my questions about it here. I've seen that those beautiful long-term upward trends after the moving averages cross, that all those articles show off, are rare. I analyzed it with 2020 data and out of 60 trades, 35 trades were losing trades. It would still have been profitable, but the usual trades kill the majority of the profits. Those aren't considered in the articles I've read. So, can someone recommend me how one could deal with these problems on the picture?

Maybe it's something obvious, but I guess something complementery is required.

Thanks.


Moving Average - Trend Indicators - MetaTrader 5 Help
Moving Average - Trend Indicators - MetaTrader 5 Help
  • www.metatrader5.com
The Moving Average Technical Indicator shows the mean instrument price value for a certain period of time. When one calculates the moving average...
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Fernando Carreiro
7052
Fernando Carreiro  
Mohammed: I've recently read about the crossing moving average strategy and decided to take a close look on it. I further thought I could as my questions about it here. I've seen that those beautiful long-term upward trends after the moving averages cross, that all those articles show off, are extremely rare. I analyzed it with 2020 data and out of 60 trades, 35 trades were losing trades. It would still have been profitable, but the usual trades kill the majority of the profits. Those aren't considered in the articles I've read. So, can someone recommend me how one could deal with these problems on the picture?

Maybe it's something obvious, but I guess something complementery is required.

Look to a higher time-frame (4 or 5 times longer) to see what is the prevailing trend, then only take trades signaled by the cross that are in the same direction as the prevailing trend in the higher time-frame. That should help filter out some of those losing trades.

To further improve the odds, look for pullbacks and only enter the market, when the pullback starts to go in the trend direction again. That should offer you a better entering price then simply taking a trade when the cross occurs.

However, the most important part of having success with the cross, is managing the trade properly and applying sound money management and position sizing based on proper risk assessment. Don't just base your trade's volume on free margin. Do proper assessments of risk (i.e. where to place the stop-loss, taking into account the volatility, swing points and where the cross will be invalidated), and then calculate the volume or position size based on that risk. Then manage the trade by adjusting a trailing-stop based on those very same principles.

Mohammed
10
Mohammed  
Thank you for your answer. I appreciate it.
I could try the first part again in 2020 and alltough it lowered the profit, it improved the trades profit lose ratio to 50:50 and lowered the drawdown. 
which is nice. As you said it won't solve the problem. 
I couldn't try the second part. I understand it, but I couldn't yet translate it to rules that I could implement in and Expert, as its very dynamic and those pullbacks do not always appear and sometimes a few times in a row. Simply waiting for them kills the profitable trades as well.
If I understand you correcly, the key for this strategy is simply risk management and not a complementary indicator. I will try to improve that.


Fernando Carreiro
7052
Fernando Carreiro  
Mohammed:
Thank you for your answer. I appreciate it.
I could try the first part again in 2020 and alltough it lowered the profit, it improved the trades profit lose ratio to 50:50 and lowered the drawdown. 
which is nice. As you said it won't solve the problem. 
I couldn't try the second part. I understand it, but I couldn't yet translate it to rules that I could implement in and Expert, as its very dynamic and those pullbacks do not always appear and sometimes a few times in a row. Simply waiting for them kills the profitable trades as well.
If I understand you correcly, the key for this strategy is simply risk management and not a complementary indicator. I will try to improve that.

Do some research on Elder's "Triple Screen Trading System" (see the original description in his books). He uses oscillators in the "Second Screen" to find the pull-back region which should help you create rules for use in an EA.