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Why exactly do EMA crossover systems not work?

  • #81
  • Dec 23, 2010 12:44pm Dec 23, 2010 12:44pm
They don't work because there trigger cross for entry is to slow you've missed much of the move but it's hard to get a better momentum direction, then the second issue is it's to slow to get you out.

You've got a system which will :-


1. Get you big moves when they happen +
2. Will also take a loss 70% of the time on stalls -
3. Will knickel and dime you to death.


You could try 2 sets of EMA's, 1 slower for your entry and 1 faster for your exit to reduce your losses.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #82
  • Jun 9, 2011 5:36am Jun 9, 2011 5:36am
I believe that sma's work, but am only starting out in trading world.
I am working on a system that works when bid price line crosses over the 50 sma and scaling in or out as trade continues with a trailing stop. but am still very green and would appreciate if you could tell me how your system works as I think it sounds like a great way to trade, thanks.
  • #83
  • Jun 10, 2011 6:04am Jun 10, 2011 6:04am
Quoting degrath
I believe that sma's work, but am only starting out in trading world.
I am working on a system that works when bid price line crosses over the 50 sma and scaling in or out as trade continues with a trailing stop. but am still very green and would appreciate if you could tell me how your system works as I think it sounds like a great way to trade, thanks.
I suggest you to trade on the daily charts since the trends are much clearer and there's less noise. Price and SMA crossover should work, but gives a shitload of false signals and has insane downswings - sma crossover systems are better in my opinion.

Also you might want to try to trade only in the direction of the swap, to basically make a carry trade. And as a general rule, bigger SMA-s work better (20,50,100,200).

Take care of your stop losses, it's a tricky business in sma crossovers. If you trade small (like the size of your account per trade: 0.01 lots if you have 1k) and let the opposite crossover dictate the close of a trend you let the price fluctuate (which is good) but you might end up taking a bigger loss then expected at a sudden movement. Avoid losing more then 2% of your account in a single trade.

If you put tight stoplosses you will have perfect control over your risk but you might miss great opportunities (sma trading is all about losing a little a lot of times and then make a killing in the market).



Since you said you're a begginer, you should find some trading system that you believe in, keep a journal of every trade, and stick with the system!!! It's ridiculously hard to do. Also, keep in mind that you can loose a lot of times consecutively (10 times is not uncommon, even more is possible) and you need a lot of trades to figure out the expected value of the system (at least 100, 200+ trades would be best).

I hope you'll consider and maybe use this advice, otherwise we just wasted our time. Use what i wrote and even if you mess up you won't mess up that bad. Keep in mind that 30%+ yearly in trading is great and 100%+ on the long term is rare. Don't believe in 100% monthly or other garbage.

PS: Some things that i wrote here are rare, nobody ever told them to me. I discovered them after almost 1000 trades, about 10 books, a fair amount of MQL backtesting and while working for my bachelor's degree about the rentability of trades in forex. I'm not saying there aren't other ways to trade sma and sma crossovers, i just said this is the one i discovered and this is the one i think it works. Good luck!
  • #84
  • Jun 10, 2011 7:00am Jun 10, 2011 7:00am
That is great to hear someone with experience uses sma crossovers. I believe in using a simple system backed up by an ear to news.
I will continue to demo trade and keep a journal until my percantage is satisfactory, but at least I think I have found a method that suits me and I can refine it as I go. I might usea 50sma and 1 sma crossover and use same crossover as stoploss.

Thanks again.
  • #85
  • Jun 13, 2011 12:04pm Jun 13, 2011 12:04pm
Ema Crossovers work but which of them you have to learn optimization and you will find which
Periods works better you must remember also that cross overs that work in one asset don’t work in the other
So you must optimize to each pair, adjust your money management and you get an excellent strategy.
You must also know a simple think The best strategies they get more looser than winners but one winner
Can overcome 10 losers Money management !!!!!!!!
  • #86
  • Jul 11, 2011 8:01am Jul 11, 2011 8:01am
Yes I agree money management is as important as a good strategy, I just have to work out a stop loss that allows the trade to mature.
I am now demo trading 50 and 3 sma crossover instead of 50 and 1 sma crossover as it filters noise and false breakthroughs.
  • #87
  • Jul 11, 2011 9:50am Jul 11, 2011 9:50am
Quoting aicccia
Is it because ema's inherently lag and this kills them in ranging markets?
Exactly. MAs are lagging indicators thus giving signals when move has already started. RSI is the best leading indicator.

Checkout my den.
  • #88
  • Jul 11, 2011 1:23pm Jul 11, 2011 1:23pm
Quoting aicccia
Is it because ema's inherently lag and this kills them in ranging markets?

Actually, lag can be a good thing.

The problem is really two fold. Although EMAs are a derivative of price, they don't really employ price in their signal criteria. In other words, An EMA cross system does not look at prices to the left, nor does it look at prices that may be traded into.

Therefore, a right-side only trader-one who is only looking at the right edge of the chart for an indicator signal-will get whipsawed to death when price is ranging because EMAs signal the same in congestion as in trending markets.

And that same right-side only trader will be put into bad trades based on EMAs when the EMAs signal trades that fail to take price above or below into account. So if there is an obvious support level just below, EMAs still signal trades without regard to the support level. A trader that looks left before trading right, can see the support level and then choose to not take the EMA signal into a left-side price.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #89
  • Jul 11, 2011 1:43pm Jul 11, 2011 1:43pm
Quoting T@rantula
Exactly. MAs are lagging indicators thus giving signals when move has already started. RSI is the best leading indicator.

Checkout my den.

RSI isn't a leading indicator, it's huge a percentage of where you are based on a previous calculated high and low, 50% in the middle, 0 or 100% then your likely outside of it, pretty much pointless.

You've got to have Lag, you can't see 5seconds into a trend change ( unless it's a NFP event ) that the markets turned, it takes time / momentum to prove it, which also runs the risk of that capping out on you and failing but hey if it was easy we'd all be millionaires.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #90
  • Jul 11, 2011 3:11pm Jul 11, 2011 3:11pm
A bad carpenter argues with his hammer.

The RSI is a decent tool if someone knows how to set it up correctly, and use it with a clear set of criteria.

I haven't used the RSI in a few years, but made good money with it when I did.

That's the key more than anything else. Many people tend not to explore the depth of a tool or how to integrate it into their process.

You can make money with a single MA if you know how to read a chart.
  • #91
  • Jul 11, 2011 4:00pm Jul 11, 2011 4:00pm
here's one of the lower TF charts I use in tangent with higher TF SR (as an example)

the simpler the better.
Attached Image (click to enlarge)
Click to Enlarge Name: ex.jpg Size: 51 KB
  • #92
  • Jul 11, 2011 4:20pm Jul 11, 2011 4:20pm
Quoting Fudomyo
here's one of the lower TF charts I use in tangent with higher TF SR (as an example)

the simpler the better.
your chart shows exactly why ma crosses by themselves don't work.
From what I can see the crossover 1, 6 & 7 worked, crossover 2,3,4 & 5 did not and left you with big losses.

Very often they occur when the move is already over. I personally wouldn't rely on these crossovers by themselves. But if you have something more to base your trades on, then that's a different story.
  • #93
  • Jul 11, 2011 5:09pm Jul 11, 2011 5:09pm
Quoting allngap

3. Large institutions only use EMA lines as money lines, lets say price above EMA 60 is BULL and price close below EMA 60 is BEAR. Sometimes the price will be bouncing along this line and generate a lot of false signals.
I trade above pretty much exclusively, current fav M15 250ema ( nothing is near currently after this move ), but normally get nice tests and bounces or fails and big moves in the failed direction.

The trick is the market has 2 modes, 1 being trend, pull back to line and bounce 75% of the time, or Range / chop where it'll wander either side, find a pair which is trending or Chopping and trade that way until it stops doing so, easy!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #94
  • Jul 11, 2011 7:13pm Jul 11, 2011 7:13pm
Quoting Turveyd
RSI isn't a leading indicator, .


It is a leading indicator. Read Andrew Cardwell's books. Then we can discuss.
  • #95
  • Jul 11, 2011 7:30pm Jul 11, 2011 7:30pm
Quoting T@rantula
It is a leading indicator. Read Andrew Cardwell's books. Then we can discuss.

understand the simple maths then we can discuss just how pointless it is.

If you went for real time then yes fine, but nothing can see the future therefore nothing is leading, ie ahead of the markets.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #96
  • Jul 11, 2011 8:08pm Jul 11, 2011 8:08pm
Why exactly do EMA crossover systems not work?


You did not define what you mean by "works", everyones definition is different.

Everyone who uses EMAs uses different combinations of them, periods, time frames.

Few if any forex traders use multiple time frames with EMAs, which by the way, "works".....

Forextrends
  • #97
  • Jul 11, 2011 11:24pm Jul 11, 2011 11:24pm
Quoting Turveyd
understand the simple maths then we can discuss just how pointless it is.

If you went for real time then yes fine, but nothing can see the future therefore nothing is leading, ie ahead of the markets.
this right here just goes to show you don't even know wtf a leading indicator is and shouldn't be posting about them.
Congratulations ScalaFX for coming out of the closet!
  • #98
  • Jul 11, 2011 11:54pm Jul 11, 2011 11:54pm
Quoting nubcake
this right here just goes to show you don't even know wtf a leading indicator is and shouldn't be posting about them.
how can any indicator, that is a derivative of price and averaged across the last few bars, be leading price? I never understood that and probably never will.

Maybe you can enlighten us.
  • #99
  • Jul 12, 2011 12:10am Jul 12, 2011 12:10am
Quoting Custos
your chart shows exactly why ma crosses by themselves don't work.
From what I can see the crossover 1, 6 & 7 worked, crossover 2,3,4 & 5 did not and left you with big losses.

Very often they occur when the move is already over. I personally wouldn't rely on these crossovers by themselves. But if you have something more to base your trades on, then that's a different story.
Yes, exactly.

I agree with you that trading crosses is illogical. (I should have been more clear in my prior post)

These MA's are set up as trend verification and SR tools.

I enter on SR or trend line break. When my faster line flips it correlates my entry (sometimes I use it for late entry, TP, or adding on depending on where it is in relation to support or resistance levels). The slower line is good for pullbacks in correlation with prior SR, so helps keep me in trades longer.

This is what I meant by integrating a tool into a process. Personally I see MAs as useful, but not as a stand alone system.


Quoting T@rantula
It is a leading indicator. Read Andrew Cardwell's books. Then we can discuss.


I agree completely that the RSI can be a leading indicator. I use the RSX and quite often it has already flipped prior to my exit or entry, so is a good heads up tool to verify both. I find they work best on multiple TFs (I typically scale up TF once I'm in a trade) and the same holds true monitoring for exits.


John Hayden's work is also very good btw.


http://www.getfreeebooks.com/wp-cont...ermination.pdf


People have this strange notion that anything that utilizes prior data is automatically lagging. If somebody slaps something on their chart straight out of the box without setting it up properly, or learning any of the exclusions or correlations that go along with using it properly, of course they'll fail.
  • #100
  • Jul 12, 2011 12:21am Jul 12, 2011 12:21am
Quoting Custos
how can any indicator, that is a derivative of price and averaged across the last few bars, be leading price? I never understood that and probably never will.

Maybe you can enlighten us.
hi Custos,

I think it's the wording that gets confusing. A indicator like the RSI is showing a change in momentum, not actual trend change.

So, it can be said to be "leading" because momentum change often proceeds trend change.
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