I feel for new traders who have such techniques dumped on them which look great on a historic chart but which offer high risk and generally unsuccessful trading. I genuinely feel personally sad and a bit indignant when, in their ignorance and good faith, they quite naturally believe this stuff and immediately start on the road that leads to failure.
We should all be doing everything we can to at least keep new traders off risky paths. Sometimes they need to hear some straight talking.
I understand what your saying. A crossover system is basically nothing but a trend following system. You are playing the probability that you will have bigger winners then losers. That it
Crossovers are rubbish as trend trade entry signals. They are rubblsh on every time frame, on every market, with every combination of MA durations. Quoted by TommorroYou seem a positive person, it natural you would prefere a more positive and " interesting" response to your query but it true
From my perch up here in the watchtower, it seems something is not quite lining up here! @tommor says:
That message seems perfectly explicit and beyond any misinterpretation!
But, hold on a moment, The OP, @ramddo, says in his opening post:
Now THAT is a result that I am sure the proverbial 95% losing traders would kill for!!!
And not only that, he is bothered by his losing trades and wants to make it even better.
Note: Not turn a losing strategy into a winner - but to make a highly successful result even better!!!
Is this just a short term lucky streak that is about to collapse into financial disaster or does the method itself actually function?
Well, any trend will be witnessed by a crossover of a short period MA through a long period MA. That is just the plain simple mathematics on which MAs are calculated. And they will stay crossed as long as the trend continues.
Trouble is that trends come in all shapes and sizes and the same pair of MAs is not going to perform the same way in every trend.
For example, by definition, the crossover lags the start of a trend. Does this matter? On a long trend, no. But many trends tend to fizzle out early and that leaves you with an entry that turns out to be near the high/low of the trend!
Similarly, trends tend to end faster than they build up so the MA pair that got you into the trend will be much slower on getting you out, which is inefficient at best and disastrous at worse.
Whilst a system based on pure MA crossovers for both entry and exit is not likely to expand the global millionaire club, MAs themselves can and do provide very effective information about the market state.
The main thing is to understand how they function, what they are telling you and what they cannot tell you.
But I must admit that if I could produce that kind of growth in 2 months, and continue to do so in the future, then I would not be tweaking it at all!!!
I agree. I have a trend following system that uses 20/50ema cross to enter but only if there is a strong divergence between two currencies in strength.
The exit is much more important, of course. And here, I completely agree with @tommor - you need to exit much sooner than the cross in the opposite direction.
In my experience, exits based on pure price action are more reliable than based on MA or any other indicator. The main reason is the lagging effect.
The other issue I found very important is re-entry, if the trend continues after the exit. For me, this is always a struggle.
This discussion has gone some what on a side track . Wanted to find a filter for the system. Have been using the 200 EMA as a trend filter for the bigger trend, but looking at the trades I have taken, the 200 EMA is not especially effective.
By the way I am NOT using the crossover as an exit signal, only use it for entry. Using a Trailing stop loss based on ATR as exit
I donât think so, although it might appear so.
The underlying point has been that if the basic concept on which the strategy is based is itself faulty then there is no point in trying to patch up the leaks.
Your question is about finding a filter which will get you out earlier, and more reliably, than the 200EMA.
Well, the first response to your question concerned whether it is a method even worth the effort in the first place. You had a unanimous verdict that crossovers are not viable on both entry and exits (based on using the same MAâs on the same timeframe). But a split verdict on using MAâs just for entry signals. Personally, I also partially use MA crossovers for entries and I have never had a problem with that over several decades of trading. But I canât speak for othersâŚ
But, on a personal level, I also agree with @meza that exits (or filters for both exits and entries) are generally better based on Price Action techniques. This is also the basis of my own trading.
The daily timeframe is considered perhaps to be the most efficient for PA reliability. It is short enough to provide enough signals but using the daily closes eliminates, by definition, the distortions from intraday speculation.
It is possible to look at earlier supply/demand levels and/or S/R levels and/or trendlines which work even in the fastest of trend reversal situations and are also automatically there intraday without any need for monitoring - whereas the 200 EMA is still evaluating the last 200 days!
If you are still using the original set-up then, technically speaking, this is not even a crossover system for entry or close, ´A 1-period MA based on the candle close value is simply a continual line joining the daily closes (although it may appear slightly offset on the chart compared with a line chart due to where the platform places the value), in which case this method is based simply on the (closing) price crossing a longer term MA rather than an MA crossover.
Therefore, in a way this is already using a PA approach based on the position of current price vis a vis an MA-based support/resistance line. In reality, of course, a 4-period MA has no real meaning in the sense that the market would react to it. So its purpose is purely to provide a comparative relative value derived from recent price activity to compare with the current price value. And from this one derives the possible start of a new trend.
A trend is a bit like an ocean cruiser - everyone gradually gets on board in an orderly and steady fashion, full of expectations, and over a reasonable period of time. The boat sets off and everyone is happyâŚbut if there is suddenly a threat of fire or sinking, etc - everyone is going to simultaneously scramble to get off the boat as soon as possible. Price Action trailing stops are reliable and explicit lifeboats in these situations!
Trailing stops can be either automatic, shadowing the price as it moves in the trend direction, or manually adjusted as the PA/candle structure evolves. I think one of the problems with daily charts is that the initial positioning of a sensible trailing stop is often far from the entry price and is a big risk until price has moved sufficiently in the right direction to bring SL to BE. But, compared with the expected earnings from such a strategy, this is simply a matter of scale and can be compensated for in the choice of position size.
So, briefly, (if you are still reading ). You could consider turning this around and use PA to decide on the trend start/direction (e.g. from a supply/demand zone) and use the MA crossover for confirmation that it has actually begun - and also use PA methods to set and move your TSL.
Thanks for the response SovoS Nice with some real constructive criticism.
Just to clarify, the 200 EMA was only used for finding the bigger trend direction. The trades look after them self with the trailing stop loss.
The winners are about three times bigger the the losses and win ratio is 50%. So all in all this is a viable strategi. What I have found out now is that the winning trades don´t have that big of a pullback, so I will adjust my TSL be much tighter when opening the trade and then if the trade works out I will adjust the TSL so the trade will have some room to work.
About using PA I find it to subjective . It works for some but am trying to make this strategi as mechanical as possible. Playing the probability game
You are doing fine in also considering these criteria. As you obviously know, trading is not about the individual trade, it is about the long term performance overall. These metrics are good in measuring that performance even though they are backward looking. âSo far, so goodâ, as the saying goesâŚ
This is one reason why some traders move their TSLs to the nearest high/low of previous candles.
I fully agree with you. Especially trendlines are subjective. The problem with PA lines is that technical traders often expect the market to observe such lines to the pip. But the market is actually driven by a whole host of different interests and participants, many of whom are not actually speculative traders at all! Businesses and large investment/pension funds are not just driven by lines on a chart, their interests are in terms of relative value, future expectations based on fundamental issues, portfolio composition and diversification to mention just a few. And they probably havenât noticed our little lines!
If PA alone was a strict science then we would not still see 70-90% failure rates amongst retail traders. But, compared with MAâs and other mathematical indicators, it can perform better in erratic markets and sudden moves.
Absolutely, right on the nail! If only all traders could recognise that whatever instrument we trade, we are trading probability - which inevitably means losses as well as gains. Losses are the necessary âoverheadsâ incurred in the process of making a profit. And - like in any other business - success comes from managing the number and size of those âcostsâ and eliminating unnecessary and erronous losses.
This is what you are doing and you have, in my opinion, precisely the correct approach. Good luck!
. Wanted to find a filter for the system. Have been using the 200 EMA as a trend filter for the bigger trend, but looking at the trades I have taken, the 200 EMA is not especially effective.
). You could consider turning this around and use PA to decide on the trend start/direction (e.g. from a supply/demand zone) and use the MA crossover for confirmation that it has actually begun - and also use PA methods to set and move your TSL.
Nice with some real constructive criticism.
. It works for some but am trying to make this strategi as mechanical as possible. Playing the probability game