Discussing the article: "Build Self Optimizing Expert Advisors in MQL5 (Part 3): Dynamic Trend Following and Mean Reversion Strategies"
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Check out the new article: Build Self Optimizing Expert Advisors in MQL5 (Part 3): Dynamic Trend Following and Mean Reversion Strategies.
Financial markets are typically classified as either in a range mode or a trending mode. This static view of the market may make it easier for us to trade in the short run. However, it is disconnected from the reality of the market. In this article, we look to better understand how exactly financial markets move between these 2 possible modes and how we can use our new understanding of market behavior to gain confidence in our algorithmic trading strategies.
As we explained in the introduction of the article, trading strategies based on moving averages are especially popular among traders because they keep us aligned with the long-term market trend. A rather exceptional example of this principle in action is provided in Fig 1 below. The screenshot is taken from the Daily EURUSD exchange rate, and shows a bullish market trend that began late in Nov 2016 and ran until April 2018. An impressive run by any measure. Note that the moving average indicator also gave confirmation that price levels have been in a long-standing uptrend.
Generally, speaking, we can see that our long positions could have been set up whenever price levels closed above our moving average and our short positions could’ve been set up whenever price levels closed beneath our moving average.
Fig 1: An example of our moving average defined trend following system in action
Author: Gamuchirai Zororo Ndawana