When I first started trading, I looked all over the place for a simple profitable trading strategy that can help me gain some profit. In my search I came across many strategies that use moving averages, and one of the strategies that caught my eye in many resources was moving average crossing. The question that I faced back then was, does it actually work? (Scroll to the bottom for a link to the FREE EA used in this articles tests)
Moving Average
Simply put, a moving average is a lagging indicator that is used in technical analysis to reduce market noise. The simple moving average (SMA), which is most commonly used, is the average of a currency over a defined number of time period.
The MA Crossing Strategy
The rules of this strategy are simple. Let's take as an example the 50 and 200 SMA crossing, which are common parameters you would find talked about. You would buy when the 50 SMA cross and be greater than the 200 SMA and sell when the 50 SMA cross the 200 SMA to the down side. A simple beginner strategy that did not get me anywhere at the time.
When I started trying out this strategy on demo accounts or while backtesting visually, I never saw any potential with it. It always led me to overall losses. I used to come across traders swearing by this strategy and giving statistics that I came not to believe because it has never worked with me. What I did was leave this all behind me not to look back until a week ago.
Last week, I was in search of a trading strategy with a 1:1 risk reward ratio, a 50% win rate and as little consecutive losses as possible. Here's when the MA crossing strategy came to mind. As I have mentioned before in (Does a Low Risk-to-Reward Give You an Edge in Forex? ) the 1:1 risk reward and 50% win rate should be easy to achieve but the consecutive losses is very hard to control.
Today, I have the experience and ability to truly test the full potential of many strategies by allowing a simple automatic trading robot or expert advisor (EA) do the testing efficiently and see if there's any merit to this strategy in particular. I went ahead with my EA and started to do my testing on some currency pairs while making sure that I take into consideration my complete steps to thoroughly backtest a strategy (This is a topic for another day. Stay tuned) and came up with interesting findings.
The Trading Robot Rules and Test
The rules I programmed were simple. Open a trade when the fast MA cross the slow MA going up, and an opposite trade for when the fast MA crossed downwards. I didn't limit the trades to go with the trend and the trade management was set and forget stop-loss and take-profit orders. I started backtesting in search for any parameters that has the potential to actually work, and here were the results:
Even though most of these results are not what I consider good enough for me to trade and some do not justify manually trading this strategy, if you are realistic in your expectations of a strategy, then these results were not bad. Also do note that just like any other strategy, the parameters are different from one currency pair to the other.
Reputable or new traders usually will give out all sorts of trading strategies, but that does not make them any good for trading. The 50 200 SMA crossing was a strategy that I struggled with as a new trader especially with all the fake statistics I saw published. What can you learn from this is to never trust what you find online if no true evidence was presented. It is hard for traders to just give out a winning strategy for free, so use whatever you find just as ideas that you can supplement with your own rules to help you move towards a winning strategy. It took me a while to find these working parameters and it was not as simple as some might think.
If you would like to try out different parameters and test things out for yourself, you can download this simple moving average crossing EA for FREE from the store by clicking here. This will include parameters for 2 currency pairs and it will give you the means to look for more. You can also download fully featured moving average crossing EA which includes parameters for 5 currency pairs and include features such as trailing stop, trade management, money management and the ability to use four types of moving averages (Simple, Exponential, Smoothed and Weighted) by clicking here.
If this strategy has been working for you or you feel that I have missed something in my approach, please comment below and let me know.
Click here to subscribe to my blog and get the latest tips and insights in trading.
Please click here to visit the Expert Advisor Store and check-out our latest profitable EAs.
Moving Average
Simply put, a moving average is a lagging indicator that is used in technical analysis to reduce market noise. The simple moving average (SMA), which is most commonly used, is the average of a currency over a defined number of time period.
The MA Crossing Strategy
The rules of this strategy are simple. Let's take as an example the 50 and 200 SMA crossing, which are common parameters you would find talked about. You would buy when the 50 SMA cross and be greater than the 200 SMA and sell when the 50 SMA cross the 200 SMA to the down side. A simple beginner strategy that did not get me anywhere at the time.
When I started trying out this strategy on demo accounts or while backtesting visually, I never saw any potential with it. It always led me to overall losses. I used to come across traders swearing by this strategy and giving statistics that I came not to believe because it has never worked with me. What I did was leave this all behind me not to look back until a week ago.
Last week, I was in search of a trading strategy with a 1:1 risk reward ratio, a 50% win rate and as little consecutive losses as possible. Here's when the MA crossing strategy came to mind. As I have mentioned before in (Does a Low Risk-to-Reward Give You an Edge in Forex? ) the 1:1 risk reward and 50% win rate should be easy to achieve but the consecutive losses is very hard to control.
Today, I have the experience and ability to truly test the full potential of many strategies by allowing a simple automatic trading robot or expert advisor (EA) do the testing efficiently and see if there's any merit to this strategy in particular. I went ahead with my EA and started to do my testing on some currency pairs while making sure that I take into consideration my complete steps to thoroughly backtest a strategy (This is a topic for another day. Stay tuned) and came up with interesting findings.
The Trading Robot Rules and Test
The rules I programmed were simple. Open a trade when the fast MA cross the slow MA going up, and an opposite trade for when the fast MA crossed downwards. I didn't limit the trades to go with the trend and the trade management was set and forget stop-loss and take-profit orders. I started backtesting in search for any parameters that has the potential to actually work, and here were the results:
Even though most of these results are not what I consider good enough for me to trade and some do not justify manually trading this strategy, if you are realistic in your expectations of a strategy, then these results were not bad. Also do note that just like any other strategy, the parameters are different from one currency pair to the other.
Reputable or new traders usually will give out all sorts of trading strategies, but that does not make them any good for trading. The 50 200 SMA crossing was a strategy that I struggled with as a new trader especially with all the fake statistics I saw published. What can you learn from this is to never trust what you find online if no true evidence was presented. It is hard for traders to just give out a winning strategy for free, so use whatever you find just as ideas that you can supplement with your own rules to help you move towards a winning strategy. It took me a while to find these working parameters and it was not as simple as some might think.
If you would like to try out different parameters and test things out for yourself, you can download this simple moving average crossing EA for FREE from the store by clicking here. This will include parameters for 2 currency pairs and it will give you the means to look for more. You can also download fully featured moving average crossing EA which includes parameters for 5 currency pairs and include features such as trailing stop, trade management, money management and the ability to use four types of moving averages (Simple, Exponential, Smoothed and Weighted) by clicking here.
If this strategy has been working for you or you feel that I have missed something in my approach, please comment below and let me know.
Click here to subscribe to my blog and get the latest tips and insights in trading.
Please click here to visit the Expert Advisor Store and check-out our latest profitable EAs.