There is not always a prolonged trend after a moving average crossover

Hello, i apologize for my english but i’m french and it’s difficult for me to write in english. I hope you will understand me :stuck_out_tongue:

I 'm trying to build a swing trading system on a daily chart. Like the “so easy it’s ridiculous” system.

I think a simple system based on a MA’s crossover can perform. But after a quick backtesting of this, it occurs that there is not always a prolonged trend after a moving average crossover. Not surprising of course.

I would like to know if there is a way for see if the trends will be prolonged or not.

thank you in advance. I would like to say that rocks :smiley:

MA crossover systems are usually not very effective so I’d suggest you try creating a system that doesn’t use them.

However, if you are set on using MA crosses there’s several things you can do to determine if its a true cross or not.

First, use high MA values. I don’t think I’d ever use 5,10 ema/sma. I’d move up higher to around 20,40 or 50,100.

Secondly, I’d plot one 200 sma. The 200 ma is usually a good indicator of overall trend. Above 200 means an up trend, below means a down trend. This isn’t always the case, but a good rule of thumb.

Now, a way to determine whether a move is good or not could use these filters. Only take MA crosses that are going in the direction of the major trend…so the 20 crosses the 40 only in the long direction when above the 200ma.

Another way is to use a slower moving stoch and if its in oversold/overbought when it crosses the MAs might indicate that it doesn’t have enough steam to make a full cross.

Finally you can use RSI and the cross of the 50 to determine if the trend cross is strong or not.

These are just some ways to filter bad trades but you’ve gotta try them out for yourself. Look at some of the other trading plans in the holy grail sections and see how others trade. You’ll probably like those way more.

Bonjour Zalton,

MA crossovers, in my opinion, are one of the worst ways to identify a trend. Here’s is a good method for telling when a one trend is ending and a new one is beginning on a daily chart.

A trend is nothing more than a series of higher highs and higher lows (or lower highs/lows for a downward trend). Here is an example from a GBP/JPY daily chart. Notice how the high points I’ve circled in white keep getting lower and lower, and how the low points circled in green also keep getting lower?

When this pattern breaks it can mean a trend is coming to an end, and a new one will be beginning. Here are the three things to look for that signal the death of a trend.

1: A break in the trend’s trendline.
2: A high that’s above the previous major high point.
3: A low that’s above the previous major low point.

This is for a downward trend, an upwards trend would need to use the opposite of steps 2 and 3.

Here’s a chart showing these 3 things. It’s a little cluttered, I hope it’s not too confusing.

And finally, here’s a chart that shows our signals were correct. The old trend ended and the pair has been trending up for the past 6 months. If you had gotten in at the absolute earliest point after the signals (marked by the light blue vertical line) you’d be up +2400 pips right now!!

Ok, thank you very much for your answer.

Your method with trendline seems good.
I ask me if after that the trend line have been broken it is better to catch all the trend in one time only, or to benefit of it in several time by take only long position (in case of an upward trend) and leave it when the price go back.
I hope you understand me :frowning:

In the second case, I suppose that I should use the moving averages for go long when it is correct ? Or maybe other things?

A superb answer here Phil!! :slight_smile: :slight_smile: :slight_smile:

Very clear charts (no grids) and very clear price action.

Very easy to understand with simple and accurate explanations.


This is a most helpful answer!! :slight_smile:

I wouldn’t use a moving average at all, they simply lag too much.

You’ll notice that there is a long wicked “hammer” candle at the bottom of almost every wave on the chart. The fact that the candle after it moved back up above the hammer is all you really need to know that you’re at the bottom of a wave and to take a long trade.

If you were using lagging MA crossovers to see that you’d miss the first 2-3 days of the movement! :eek:

Here are the trades I would have taken, entering when the next candle breaks the top of the hammer. Place you stoploss below the hammer and the profit target is the previous high point…

Most people wouldn’t have the patience to trade this way, because it only generated 3 trades in 5 months, but remember there are other pairs you can trade too!

I love your post phil 838 :smiley: Never stops

Your method seems very good one more time. Thanks

I don’t know if I could find lots of beautiful trends like this one. But I hope yes.

I ask me if it’s possible to simplify by catching all the trend in one time on several pairs.

In your exemple, i will enter at the first entry that you have marked and exit at the end of the trend.

That will take the same time and we will catch more pips, wrong?

Finding trends like that isn’t too hard. I didn’t hunt that one down because it was perfect, I just picked the current trend on my chart. :slight_smile:

You can try and catch the whole trend at once if you want, I know a lot of people that do it that way.

One thing you have to realize though is that’s you can never get 100% of the trend, you will always lose some of your winnings (usually 1/3 or so) when the trend is ending. This isn’t really a bad thing, you still make money, it just annoys people that they have to give some of their profits back. :slight_smile:

An example…

I can’t really say if it’s better to get small movements during the trend, or to catch one big movement. Which way is more profitable just depends on how long the trend runs, and we never know that until it’s over. :smiley:

I’ve test a crossover system with a 5 EMA applied to close and a 10 EMA applied to open. It seems nice.
What do you could tell about one ema applied to close and one other applied to open?

Without transition, my idea is to build a system which catch the biggests trends without bother small trends. On a daily chart and on many pairs in order to smooth profits. What do you think about this?