How to deal with situation where losers outweigh the winners on EMA crossing ?
I have built an EA with EMA crossing logic.
It works very well in backtesting, generating BUY and SELL positions when the fast and slow EMA lines are crossing.
However, the profit is sadly lost when unexpectedly the trend reverses against the EMA indication, which is something I have been unable to explain.
Has anyone experienced something similar?
Bro you haven't provided a lot of detail in your post however it sounds like you're running into the same problem all trend followers face, how to manage noisy, volatile or whipsaw market conditions. Whereby as you described, price behaves erratically and reverses itself all the time.
There's no one size fits all solution, however I've entertained the following ideas:
1) Count the number of times price is cutting your moving average line every day, if it exceeds a certain threshold maybe that's an early indicator that today is going to be a noisy day. Or try find a ratio of the number of intersections divided by the amount of time that has passed, something along those lines
2) You didn't mention stop losses and take profits, but I'd like to believe you're already using them.
3) Also, if you think about it, those type of market conditions seem to cluster close to each other. So, by modelling market volatility, GARCH models are commonly used for this, you can proactively anticipate noisy markets and possibly stay out.
From what I've observed if you're using a trend following system, I believe the best solution is to simply stay out of the market on those days, therefore the challenge becomes how to tell if today is one of those days.
Bro you haven't provided a lot of detail in your post however it sounds like you're running into the same problem all trend followers face, how to manage noisy, volatile or whipsaw market conditions. Whereby as you described, price behaves erratically and reverses itself all the time.
There's no one size fits all solution, however I've entertained the following ideas:
1) Count the number of times price is cutting your moving average line every day, if it exceeds a certain threshold maybe that's an early indicator that today is going to be a noisy day. Or try find a ratio of the number of intersections divided by the amount of time that has passed, something along those lines
2) You didn't mention stop losses and take profits, but I'd like to believe you're already using them.
3) Also, if you think about it, those type of market conditions seem to cluster close to each other. So, by modelling market volatility, GARCH models are commonly used for this, you can proactively anticipate noisy markets and possibly stay out.
From what I've observed if you're using a trend following system, I believe the best solution is to simply stay out of the market on those days, therefore the challenge becomes how to tell if today is one of those days.
After careful thinking,
I realized that trend following logic only works on longer timeframes as shorter ones are full of noise without opportunity to build a trend to follow.
It seems H1 and above timeframes are suitable for trend based function, GARCH included.
And yes, you are absolutely correct, we do need to stay out during volatile periods, assuming we can detect those.
I have 2 questions:
1.
Is it only GARCH that I could use on top of my main EMA crossing signal?
2.
Is there any logic suitable for shorter timeframes?
Something that enters and exits very quickly, taking advantage of small moves.
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I have built an EA with EMA crossing logic.
It works very well in backtesting, generating BUY and SELL positions when the fast and slow EMA lines are crossing.
However, the profit is sadly lost when unexpectedly the trend reverses against the EMA indication, which is something I have been unable to explain.
Has anyone experienced something similar?