Hello.
A common sentiment I see expressed on this forum is one of discontent towards systems based on the crossover between two or more moving averages. Yet I read good reviews and results about systems such as the Cowabunga strategy and the “Awesome Crossover System” (the one from ForexPhantom).
So far, I focused on naked price action. I’d like to try new things.
All systems work and then they don’t. Systems need to be used in context, they need to be suitable to market conditions. When the market is choppy, trend systems don’t work. When the market trends buying support and fading rally’s doesn’t work.
When conditions don’t suit then the trader inevitably loses and this is where you see the words draw down appear. In a wonderfully trending market like the USA indexes have been in for many years trend following would have made a lot of money and support and resistance trading would have been getting crushed.In choppy markets the trend followers get crushed. Trying to work out market conditions and use the correct strategy is extremely difficult, because the market will trend, become choppy, trend etc.
Back to your enquiry, crossover systems will work wonder wonderfully well in trending markets as long as you let the trade run till the trend finishes. If you suffer from trading anxiety and panic attacks like me and probably a lot of other traders then you will be unable to hold the trade for as long as you need to, so you will not capture the big winners that trend followers need to stay profitable and the system will be a loser as your not getting maximum gains in optimal conditions and then losing in choppy conditions.
Everything is a trade off in this game, that’s why you keep hearing the phrase do what’s comfortable for you.
Sure, there are some short-term enthusiastic comments from people who happen to have started off, briefly, with a good run.
There are also loads of comments (if you can find them, which is never easy here) from people who have actually backtested them (especially the Cowabunga, of which many have tested various variations) and satisfied themselves that it has no edge at all.
Using MA crossovers as a trade-entry method is just daft - but so are many other “very popular” ideas: it’s the triumph of hope over reality.
Thousands of traders are using MA crossovers as trade entry signals. They’re not making a living.
Nobody who’s making a living from their trading is using MA crossovers as trade entry signals.
That tells a story.
Moving averages have many sensible and reasonable uses. This ain’t one of them.
I couldn’t find any backtest for the Cowabunga system, but I did find one for the Awesome Crossover System. It was made by Robopips, you can find it here. [quote=“LaughingCharlie, post:3, topic:144328”]
Thousands of traders are using MA crossovers as trade entry signals. They’re not making a living.
[/quote]
Do you have any suggestion for a system that works? Yes, I know money management and risk management, which are tied to the trader, play a bigger role than the strategy itself, but I would still like to start with at least a strategy I know works for others. If I know the strategy is valid, then I’ll know for certain that failure has to be tied to my money and risk management.
MA cross-overs are just an entry signal, not a trading strategy. And they are a terrible entry signal for reversals.
If you use them as an entry signal, the more challenging questions are how to manage risk (especially bearing in mind these are not highly reliable signals), where to put stops and where to voluntarily exit. They are a valid entry signal for a continuing trend which you can then ride and pyramid if you wish. The signal is late for entry on a reversal but not automatically too late for entry into a confirmed and matured trend.
A serious problem is that so many of these cross-over signals are followed by only a short continuation movement by price. So you need a more responsive exit signal than the entry signal. Which is why its inadvisable to stay in the position until you see the reverse cross-over signal. So with a low win rate you need a large average winner and small average loser.
Pretty soon you realise that you’re balancing the poor win rate and making all your profit off long-term trends and you come to wonder why you have to wait for this stupid cross-over before you get the green light to join the trend. So you find a set-up that is better attuned to your strategy and the sort of trends that it works best in. And you pretty much drop the cross-over because usually you’re already in the trend by the time it prints these days anyway.
And that’s how it gets such a poor reputation.
I know a crossover is not a strategy, but an entry signal. I was referring to those systems that are based on this signal and use it to build a strategy around it.
For example, I was looking at the Awesome Crossover System where the signal is composed by three parts: 1) Cross between a 10 EMA and a 5 EMA, from above or below, on 1h charts; 2) RSI crosses 50% level, from above or below, in confluence with the EMA cross; 3) MACD is following the RSI.
For stops, I would add my small variant to it and use a 12 hours ATR times 1.5. For target, I would add a fixed one behind the next support or resistance, plus a trailing stop to breakeven if things go well.
Sounds like a classic and sound approach, thanks, I hadn’t heard of it.
I think where beginners go very badly wrong using MA cross-overs is they don’t have an exit plan - except to think you can only exit when the opposite cross-over prints.
What do you think sets this system apart from what you generally feel about MA crossovers?
Beginners get the idea you see a cross-over and you go in full hilt, with no exit plan. And they don’t think of a stop because the cross-over is abstracted from the price chart - it doesn’t directly relate to recent price movement or support/resistance. so they don’t bother with a filter system - which this approach does use.
Sounds OK, but is it workable in practice is the key question.
Cheers.
Many criticise the use of MAs, and especially as crossovers, because they claim they are lagging and only telling you what has already happened and gone. But actually the fact that they are lagging is precisely why they are useful. Their role is to smooth out the peaks and troughs of the price volatility and draw a line representing the “centre of the road” through the recent price history as far back as the number of periods selected.
Therefore if one selects one fast ma and one slower ma then the faster ma will indicate when the most recent price action is starting to move either more up or more down relative to the earlier price movements. That is the theory.
It fact, ma crossovers would always work if the price movement always continued far enough after the crossover to build in a profit before the subsequent crossover - unfortunately, this does not always happen. Crossover methods are fraught with problems arising from fake moves. These are trend-trading methods and markets do not trend very often and spend much time in consolidations and directionless wandering around. It is during these directionless periods that these systems give back all their gains and often even more.
As with any trading method, it is the exit that is most critical and hardest to define because each move is unique and it is impossible to tell if any crossover is the start of a 10 pip move or a 500- pip move. It seems to me that people spend far too little time focusing on their exit strategies (target and stoploss) even though this is the most crucial area concerning risk/money management.
I belong to the camp that does use crossovers as an entry method, but not in any mechanical way. It is my way of confirming that price movement is starting to do what I anticipate it should be doing.
There are many methods using MAs in some form or other and it can depend very much on the timeframe one wants to use.
By way of example I have made for you a 15m chart of USoil with a 2MA cloud based on an 8 and 15 period pair of EMA’s (red/green). The crosses are ringed in red and one could say that if one entered on each cross with a 15 pip target then you would have succeeded on nearly every crossover. But if traded manually this is hard work and means sitting watching your screen constantly.
If we now squash up this same chart and overlay another 8-15 period EMA pair, but this time with a 4-hour TF (blue/yellow) then it starts to look very different and all the previous up and down crosses all occur in the one same down move in the 4H pair:
This is only to show the huge area of variation in approaching MA crossovers - this is only one combination of 2 mas with only one type of ma with only two different timeframes! The combinations are endless. But we can also assume that with computer power, every possible combination of crossover, where using the crossover for both entry and exit, has been backtested and presumably never come out with a net profit. (perhaps someone should try a reverse position MA crossover system! 
)
My belief and personal experience is that MAs can be used as an entry method but needs some filtering to avoid obvious fake moves (e.g. US holidays) and to compare with, for example, an underlying trend, etc. But I also believe that crossovers are very poor for exits because they require price to reverse some way before re-crossing and also because shorter moves often end in a fast reversal that whips away the profit before the MAs have even started to even turn.
MAs can be a very useful component of a trading method and even strict PA traders often add one or two MAs to highlight a current trend. But a simple crossover entry/exit method without filters or additional criteria will not work consistently - at least not for very long…
Thanks for the reply.
I agree on the need for strong filters. That is why I opened this thread after reading about the two systems I’ve listed in my initial post. The “Awesome Crossover System” uses two filters on top of the EMA cross: a RSI cross of the 50% level and a confluence between the RSI and the MACD. That’s all done on 1h charts.
To put my own little spin on the system, I’ve added a 12 periods ATR I use for setting a stop loss. I would also place a single support o resistance zone in order to find my target for each trade, as well as adding a trailing stop.
Finally, I was thinking about watching the upper trends (4h and Daily). If the higher timeframe are trending up, I’ll look for long opportunities on the 1h, and vice versa.
Does this sound too complicated?
This is another similar method that has been running on this site for some time and does seem to be producing some results. This uses both RSI and now an ADX filter. You may like to look at that one too.
The only point that I would urge caution with is adding a trailing stop. I don’t think automated trailing stops are a good idea, either dynamic or stepped, because they progessively raise the stop to levels that have no real meaning anymore. If they are too close then there is a risk of getting accidently stopped out and if they are too far then too much gain is given back before they are executed.
However, I think it is sensible to manually adjust stops in two situations. First, if price movement creates a new level that would be a normal place to put a stop for a new trade (i.e. forms a new interim high/low, and second, to raise it to breakeven or to lock in a profit (and create the ability to open new positions without additional risk). For eaxmple, once I see a profit of 100-150 pips I would not leave my stop below breakeven any more.
Thank you, I’ll check it out. And yes, I should probably opt for a manual trailing stop aimed at breaking even after a position has been in profit for a while.
Generally MA crossovers are a disaster however test this one that I’ve come across and it gives some good entries.
Any pair, 1hr chart, HULL 21 moving average crosses the 15 SIMPLE moving average or BOTH MA’s are pointing in the same direction. There MAYBE something in this but I don’t trade 1hr charts, only daily.
The HULL MOVING AVERAGE for me, is the BEST MA out there bar NONE!.The way I use it, is transforming my trading 
Hi if you focused on naked PA you shouldn’t “step back” and use MA crossovers. I really like crossovers and they are really easy to understand and trigger signals. I tried a lot of different MA and EMA Crossover systems on a lot of different timeframe and unfortunately I have to confess, that crossovers did not work for me. I switched to naked PA and there we go! I started janaury '22 with naked PA and now its my 4th month without a loss (demo account) so I can really say: stay at PA homeboy
MA crossovers appear to work because they get the trader into a trend, in a trend-following direction. In fact, the point in time at which the crossover occurs is random. Its often said it lags: it doesn’t lag, its random.
You might just as well make a rule that says on a day when you see two red cars drive past your house, buy if price is higher when the second car passed.
So do you use MA crossovers? I’ve been testing an 1000 Euro Demo account this mont, now it’s 25th of August and I’m left with 750 Euro. I used a 8x13x21 crossover and also a 13x21x55, 34x55 they all worked backtesting but “live” was really bad and every trade was wrong. I really like those crossovers but, and I’m talking for me, they didn’t work. Maybe H8 and H1 timeframe was the wrong choice. Gotta keep experimenting so if you have any usefull info regarding timeframe MA lenght etc feel free to share those “secrets” with me 
I don’t use cross-overs as entry or exit signals but I do use the MA sequence as a set-up characteristic. The uptrends I want to get into are only mature enough for me to look for a buy opportunity while the shorter period MA is above the longer.
The MA’s you rely on need to be at least 2 x difference in period. I have used three MA’s in the right sequence to give the trend confirmation, and that might reduce risk, but two is enough.
