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Why exactly do EMA crossover systems not work?

  • #41
  • Feb 11, 2007 3:40pm Feb 11, 2007 3:40pm
Quoting mr.marketz
Techno,

"What you guys are arguing can be said for chart patterns too. head and shoulders, rounded bottom, pennants, etc. "


Right on the money. Equally as funny is when someone starts getting fascinated with 'trading naked'. As if it was more honorable or something. Give me a break. Everyone has their set of indicators - whatever they may be, and these indicators have a 50/50 chance of being right. A book called "Fooled by Randomness" discusses the idea of how we mere mortals trick our selves into thinking that it's our study of the markets that generates our profit. Not so. The odds of seeing the future of the next market swing is always 50/50 and can never be 80% or 98%. Regardless of what indicators you may be using.
with all due respect, thats a bunch of bs. if everything was all random, no one would be making money. And I can't vouch for any one else, but I promise you I am making money in the forex market and it's not just luck.
  • #42
  • Feb 11, 2007 4:16pm Feb 11, 2007 4:16pm
When we are speaking of lagging or leading indicators, aren't we speaking more of how those indicators are being used. I believe MA's can be useful if used across multiple timeframes, where trend is determined on a larger timeframe and MAs on shorter timeframes are used as buy or sell zones in the direction of that trend. If this were the case, the fashion in which you would be using them would make them a leading indicator. You could also fade a cross on a lower timeframe amist a strong trend on a larger timeframe. Just an idea though.

Also, as far as predictive value from MA's go, or predictive value of any indicator, I believe that historic prices themselves may not tell you everything, but the mere fact that many losing novices use them just the way their easy forex book told them too gives some scenarios worth evaluating around the crosses. Also if history doesn't have any predictive value, you might as well throw trendlines, S&R, and everything else out of the door - for that, throw TA out the door, and yes price action as well as it is interpreted through the lens of historical perspective. I personally couldn't live without TA.
Man who scratches ass should not bite fingernails
  • #43
  • Feb 11, 2007 4:24pm Feb 11, 2007 4:24pm
Quoting Bemac
And to think that I actually thought, back in the early days of the Public Web, that the wars of TA vs FA vs PA were doomed.

Traders now have instantaneous access to what is going on (more particularly TA and FA , but via forums such as this, PA also) and yet Traders Still {generally} fall into the same three camps where discussion is met with Death by Flame.

It Must be in the Genes. (Jeans for those that are winning. AND I Bet {yep, gambling} that there are Still Traders in all 3 Camps that are Winning.)

Why you ask?
Because all 3 Camps have their own merit and take Study & Practice to Master.

Just because another Trader resides in another Camp does not {neccessarily} mean he/she is not earning healthy gains.
please note that I said Earning, not by luck.
Bemac, I love you so much after that post.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #44
  • Feb 11, 2007 4:26pm Feb 11, 2007 4:26pm
Quoting Darkstar
Just out of curiosity, if the markets are completely random and then you have to account for transaction costs, what exactly are you doing here? Gambling?
Anytime I put on a trade or get a feel for market sentiment, I always remind my self that I have a 50/50 chance of being right. This keeps me honest and profitable. Is it gambling... that's not really a label I'm too concerned with applying to the markets. If one wants to call it gambling - then be it. To me it holds no relevance.

I was trying to communicate the idea of indicators (of any type) being equal in their predictive qualities.

Just my 2.

MM
  • #45
  • Feb 11, 2007 4:40pm Feb 11, 2007 4:40pm
Quoting aicccia
with all due respect, thats a bunch of bs. if everything was all random, no one would be making money. And I can't vouch for any one else, but I promise you I am making money in the forex market and it's not just luck.
If you're making money, then why the inquiry in to the MA crossover systems. I think you feel that you're missing an element in your trading methodology. And in all likelihood you are. Instead of discounting what I'm saying, give it some critical though. Put the ego away, and think about it - it just might be that element that you're missing. I'm sharing one of my edge's with complete strangers, and it's "a bunch of BS". That's grand. Aiccia, you have not been around long enough to label anyones market perspective as BS.

Wishing you all the best.


MM
  • #46
  • Feb 11, 2007 5:32pm Feb 11, 2007 5:32pm
Quoting Darkstar
The more interesting question is, why "Should" EMAs work?
Amen.
Profit is where readiness meets Opportunity
  • #47
  • Feb 11, 2007 8:23pm Feb 11, 2007 8:23pm
I think all of the above responses do hold truth in them.

My opinion is that it does not matter what indicator one uses, trader ain't got the fortune or future telling holy grail because a bank or government do not care about indicators when they have to unload a currency...most of it is politics, and fundumental stuff. What trader with indicators has is 50/50 win/loose on avg, assuming one has thiraly back tested it and the indicator one uses does have a good and stable history per backtesting.
Weather it is ma's, fibs, TL, a bit of fundi , time of the day, etc etc - they all will give a trader heads up on what the price may or may not do, but does not tell one that price must do somthing because that is decided by the government or banks by how thay act.

These indicators can be used as a starter - in a trade, sorto like initiating a thinking proccess to enter a trade.

The holy grail then comes with ones ability to manage the risk that If what the indicator(s) and the news indicated would happen does not continue but instead reverses, how much is one willing to sacrifice, and also how long will some one wait ( is there a confirmation now that it has reversed and it will not come back - use another indicator or news to figure that one out lol)....on and on.

In the end, what matters is when you where wrong how much did you loose, and when you are right how much did you gain ( did you let your profits run using trailing stop etc)

Its a combination of money managment ###1, and then ofcourse understanding behaviour of the pair one is trading ( few repeated things happen most of the time but not all the time)..per history backtesting and indicators, and a bit of fundumental will also help.

I must say trading aint that easy, and thats why the reward is great.
And thats why only 10% win and the rest loose since all they think ( as i used to and sometimes get tempted ), is that most of the time i will be right.
No. I will be ready for the day when I am wrong!!!!!! thus money managment.

But since I know that my indicators will be right sometimes, then i will let my profit run.

Also do not trade every time and every day for the sake of trading.
The edge ( per your system) has to be good enuf for you to get in, and then know your risk.

Also it is gambling, but more edge than playing cards and lotto.


May the pips be with you
Pipology 101 student
  • #48
  • Feb 11, 2007 10:00pm Feb 11, 2007 10:00pm
In this month's (Feb'07) T.A.S.C. magazine "Anticipating Moving Average Crossovers" by Dimitris Tsokakis.

Why should I believe I can convince anyone here the relative worthlessness of MA's when the trading magazines continue to grab the attention of traders.

Thats it, I am going to counseling. Repeat after me, Price is not all important. Calculating a deriative is much beter. Averaging it does not lag. It only appears that way. Wavy jittery colorful lines are sooo peaceful. Oooomh.



But I do agree if it makes pips, go for it.
  • #49
  • Feb 11, 2007 10:13pm Feb 11, 2007 10:13pm
This is my view of the market.

I don't believe the market is pure random. I don't believe a good and profitable trader has just 50/50 chance of success.

If we are constantly profitable trading the market, it means we have done something correctly even though we can't really explain why it works.

There's no way to know the future, so why bother guessing the future? As human, the most that we can do is just do our best with whatever we have at present time. This includes MM, signals filtering etc etc.

In fact that's how human survived on this planet since ages ago. Our ancestors never know the future, but they just did the best they can with what they have at that time.

Trading, like any other business, have "trends". Whoever follow the trend will profit. This is unmistakable. If the trend tells you that people loves pizza so much in your area, you should open a Domino pizza store and you will profit.

The ability to identify current trend is what makes people successful in both trading and business. Good news is, trends takes a loooong time to change. That gives you a lot of time to take advantage of it.

Even a volatile beast like currency has very long trends. Take a look at Daily, Weekly, Monthly charts. Things get complicated when traders are bad at defining trends, just like how businessmen folded their business because they fail to identify the trend of the market e.g The public no longer favor their products and services.

Just my two cents.
  • #50
  • Feb 11, 2007 10:44pm Feb 11, 2007 10:44pm
MAs are good trend following tools, but trading MA crosses by other MAs or by price is not by definition trend following. Biggest problem with MAs is not lag, but inappropriate application. As far as I can see there are two legitimate ways to trade with MAs. One is with something like the Guppy system and trade when the short term averages move into agreement with the long term averages and begin to accelerate away from them. That is trend trading. Two is to get trend direction from a long term chart and then trade when the trend on a short term chart turns in the same direction (as in the Vegas 4 hr). This again is trend trading. Trading crossovers is not trend trading. It can be, of course, if you wait until an actual trend forms. Unfortunately most people do not have the patience for that. So the real problem with MA systems is the desire to use them as a trade trigger rather than a reference for trend and momentum.
  • #51
  • Mar 10, 2007 9:03am Mar 10, 2007 9:03am
Yes, I agree with you. Pure crosses can lead to problems.
  • #52
  • Mar 10, 2007 10:21am Mar 10, 2007 10:21am
so it is agreed that the best combination with EMA crosses is to trade with the trend
  • #53
  • Mar 19, 2007 12:37am Mar 19, 2007 12:37am
EMA crossover works. Simple as that.
  • #54
  • Mar 20, 2007 7:17pm Mar 20, 2007 7:17pm
MA crossovers work when you understand them as a form of trendline, if you don't understand why they work, you'll never be able to use them. Yet I can say that they are the most important tool in my trading.
  • #55
  • Mar 20, 2007 7:46pm Mar 20, 2007 7:46pm
MAs work only if your definition of work allows them to do so. Sounds confusing, but it is rather simple. It is not a secret that MAs lag price so if you are using them as a predictive tool to let you know the best time to enter or exit a market, then you may experience some problems.

I feel that many traders get into problems with MAs because they use the crosses as a means to enter a market out of fear of missing the move. Think about it, it really isn't that easy nor should it be. While a moving average may get you into a trend move, the point of cross is not necessarily the best entry, especially in terms of reward and risk - alot of times, you will find a much better entry at a "worse" price than the cross. This better entry has nothing to do with the actual price itself, but rather with the relative reward to risk of the entry and the probability of the move going your way from the moment entered.

So essentially, I am of the opinion that there is no need to turn a perfectly good Lagging indicator into a poor leading indicator. Use it for its strength of giving you an overall context to trend direction and it will serve its purpose well, especially if used across multiple timeframes. Then find a good leading indicator to make your entries near levels that will serve as strong areas to protect your stops, all within the context built, all or in part, by your analysis of the positions of the MAs.

You will be shocked at how much you can get out of things when you begin to read what they are trying to tell you as opposed to trying to get out of them what you want to read.

Just an opinion
Man who scratches ass should not bite fingernails
  • #56
  • Mar 20, 2007 8:07pm Mar 20, 2007 8:07pm
Quote
So essentially, I am of the opinion that there is no need to turn a perfectly good Lagging indicator into a poor leading indicator. Use it for its strength of giving you an overall context to trend direction and it will serve its purpose well, especially if used across multiple timeframes. Then find a good leading indicator to make your entries near levels that will serve as strong areas to protect your stops, all within the context built, all or in part, by your analysis of the positions of the MAs.

You will be shocked at how much you can get out of things when you begin to read what they are trying to tell you as opposed to trying to get out of them what you want to read.

Nicely put. Bravo
  • #57
  • Jul 15, 2007 8:07pm Jul 15, 2007 8:07pm
Quoting fx_trader
What do you use as trade entry signals? This system seems EXTREMELY interesting to me.

I was curious about this too, so I pulled up a current chart, and it sliced through it about 7 or 8 times in each direction. Although.....ONE time it bounced off of it.
  • #58
  • Jul 16, 2007 6:09pm Jul 16, 2007 6:09pm
Quoting taxgeek
MAs are good trend following tools, but trading MA crosses by other MAs or by price is not by definition trend following. Biggest problem with MAs is not lag, but inappropriate application. As far as I can see there are two legitimate ways to trade with MAs. One is with something like the Guppy system and trade when the short term averages move into agreement with the long term averages and begin to accelerate away from them. That is trend trading. Two is to get trend direction from a long term chart and then trade when the trend on a short term chart turns in the same direction (as in the Vegas 4 hr). This again is trend trading. Trading crossovers is not trend trading. It can be, of course, if you wait until an actual trend forms. Unfortunately most people do not have the patience for that. So the real problem with MA systems is the desire to use them as a trade trigger rather than a reference for trend and momentum.

Great post.
  • #59
  • Nov 28, 2007 8:59am Nov 28, 2007 8:59am
I agree with posts 2 and 3. Good points.

I am able to make very easy high profits using EMA crosses on all time frames and find it hard to lose, but I would have to be foolish and take unnecessary risk for a loss to happen. I think we need to use an accurate indicator that does not lag as much to go with this trading system, it will generate millions of dollars then, if you trade right.

Also agree with posts made by taxgeek and Leugimp.

If you use an indicator with better performance than the MA's you will be able to get in and out at the right time and make a nice profit each time, personally I have tried using only indicators with big lag and still manage a profit on each trade.

I have an idea for a 5 in one EA that would allow it to be consistently profitable. I don't have the coding expertise to do so much and few will that are available to help code such an EA. It is effectively merging elements of 4 system ingredients into one and adding an extra revolutionary strategy that works to minimise risk even further. I think it would work, but it is no use me sharing the idea unless I find coders that can do it all.
  • #60
  • Oct 20, 2010 10:29pm Oct 20, 2010 10:29pm
Funny thing is MA crossover actually work. I tested 20 and 100 and seems to do ok on D1 TF (keep in mind that going down timeframes crushes your expectancy). The system even made money on EURUSD 1H and GBPJPY 1H.

How much money? Well that's kind of a problem. I traded a lot with 100.000$ account for the last 10 years (backtested in MT4). After the test both EURUSD and GBPJPY made around 20-50% profit (no other pair beat that). So that's 2%-5% per year from a pair. With EURUSD maximum drawdown 25% and GBPJPY 75%!!! Sick

On average a trade on GBPJPY H1 made 3 pips per trade !!! That is if you're broker has 5pips+spread you loose money (i tested for 2pips spread). And there's no freakin way to have 50% winning trades, best i got over a big sample size (500+ trades) was under 35% succes rate.

In my opinion clean ma crossovers work for sure on D1, and you'll probably loose money on lower timeframes (spread, slippage, you just can't trade perfectly).

If you improve your system with something (by the way this is extremely hard, throwing a random indicator there is wasting time since you'll make trades just a little more profitable but a hell of a lot less often) you might go under D1 (whoever says he makes money trading ma crossovers on TF under H1 has no idea what he's talking about).

I hope it helps. In my opinion you're best chance is trading D1 TF on a lot of pairs and only in the direction of the interest (basically carry trading). And eventually put some leverage in there, maybe 2:1 per trade, 3:1 risky, 5:1 you're suicidal. Good luck!
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