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Why exactly do EMA crossover systems not work?

  • #201
  • Edited 11:48am Jul 24, 2011 11:44am | Edited 11:48am
Quoting Pipalicious
So, can ema's (or watever) be used as a way of "classifying" market conditions?
Of course, if you spend your time to do some your own researches. Moreover, you have learned so many discoveries by FF members. You probably will understand something in difference perspective.

I'll give you a clue:

Quoting CrucialPoint
Here is a trading secret:

"There is really only 1 way to make money in trading."


Whether you are swing, trend following, hedging, long term, scalping, intraday, elliot waves, gann, wolf waves, fibonacci, forks, reversals, pit, gartley, COT, news, volume, technical or fundamental traders, etc... You all do the same thing; You only make a profit when you capture price movement from point A to Point B.

Price movement from point A to Point B is the truly truth trend. Not _MAs, S/R Line, Trendline, etc...etc...

CP was trying to tell you how trend is by telling that

How the implementation depends on your own comprehensive knowledge.
  • #202
  • Jul 24, 2011 12:20pm Jul 24, 2011 12:20pm
Quoting Pipalicious

So, can ema's (or watever) be used as a way of "classifying" market conditions?

I've switched to LwMa's recently, better back fitting currently which should = better forward fitting and higher profit ratio, in a months time ofcourse I might need to switch to other MA's or different numbers, it's a constant changing thing.

Thats basically what I do, market above a MA = uptrend, especially if the market is retesting the ma and turning up again, I haven't got a Line though I have a 25pip approx range depending on the pair.

Crossed give to much back on a trend change and in weak conditions / chop they can get triggered many times just to reverse back down and you can't tell when it'll be a good move or a bad move.

And I don't believe Banks use Word searching EA's, don't believe everything you here, other than the quantum trading I don't believe they even use EA's, they do use Buy / Sell programs to be able to trade at the volumes they use, but there entire human decision, start buying and how aggressive and stop at 20,000 lots or on command.

If banks could use EA's profitable, then why would they pay traders BILLIONS every year in commissions ?
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #203
  • Edited 1:18pm Jul 24, 2011 1:06pm | Edited 1:18pm
I'll give you an illustration,

Lets assume there are 2 traders here, they use the same indicators ( 1 trend indicator and 1 ranging indicator) but use the difference TF.

Trader A use 4 hours TF: his problem is he can't capture some small fluctuations.

Trader B use 5 minutes TF, he looks the fluctuation that can't be able to be captured by Trader A has a pretty wide range, so he can capture it very easy.
But his problem is he can't also capture some small fluctuations in his TF.

So it will be the same if there is a third trader who use less TF.

What I try to tell you is there will be always some range of movements that are impossible to be captured by your system. That's a difference approach to define what choppy is.

Any system always has its own limitation. That's the idea behind Differential/Integral Calculus.
  • #204
  • Jul 24, 2011 2:02pm Jul 24, 2011 2:02pm
Quoting 100m

Any system always has its own limitation. That's the idea behind Differential/Integral Calculus.
Can you elaborate on that? Why is that the idea behind differential & Integral Calculus?
  • #205
  • Jul 24, 2011 2:12pm Jul 24, 2011 2:12pm
Quoting 100m
I'll give you an illustration,

Lets assume there are 2 traders here, they use the same indicators ( 1 trend indicator and 1 ranging indicator) but use the difference TF.

Trader A use 4 hours TF: his problem is he can't capture some small fluctuations.


Any system always has its own limitation. That's the idea behind Differential/Integral Calculus.
The word "limitation" that you use is interesting. I rely on SMAs quite a bit for my trading. There are certain types of trades that I will not take if I feel like price is approaching a MA that I perceive as being support/resistance. That reality is not a "limitation" to a trader who does not rely on MAs. In one scenario I may be right to exit my trade at a MA before it spikes in the other direction, and in another scenario I may lose out on additional profit when a pair continues on thru a MA. What it essentially comes down to is money management.

Personally, I prefer to know where the MAs are because I am afraid to trade without them !!!!
  • #206
  • Jul 24, 2011 2:23pm Jul 24, 2011 2:23pm
Quoting Custos
Can you elaborate on that? Why is that the idea behind differential & Integral Calculus?
1/x

As x approaches infinity, then 1/x approaches 0

We can't say what happens when x gets to infinity. But we can see that 1/x is going towards 0

We want to give the answer "0" but can't, so instead mathematicians say exactly what is going on by using the special word "limit"

That means the number system meets its own limitation to define the result number nearest 0 exactly
  • #207
  • Jul 24, 2011 2:28pm Jul 24, 2011 2:28pm
Quoting 100m
1/x

As x approaches infinity, then 1/x approaches 0

We can't say what happens when x gets to infinity. But we can see that 1/x is going towards 0

We want to give the answer "0" but can't, so instead mathematicians say exactly what is going on by using the special word "limit"

That means the number system meets its own limitation to define the result number nearest 0 exactly
1. Isn't that only related to differential calculus?
2. So, does this have any practical implications? Or are these just conceptual thoughts?
  • #208
  • Jul 24, 2011 2:38pm Jul 24, 2011 2:38pm
Quoting Custos
1. Isn't that only related to differential calculus?
2. So, does this have any practical implications? Or are these just conceptual thoughts?
The Illustration above is very clear. You can role as trader A and at the same time you can also role as trader B with difference TF, you will see the limitation.

If it still don't be understood, please go get some more experiences.
  • #209
  • Jul 24, 2011 2:40pm Jul 24, 2011 2:40pm
Quoting 100m
The Illustration above is very clear. You can role as trader A and at the same time you can also role as trader B with difference TF, you will see the limitation.

If it still don't be understood, please go get some more experiences.
Okay, so you just state some general truth. That's like saying the sky is blue. Don't know where that is something new or enlightening. Anyways, I am sure you gonna give some more nice truisms that have nothing to do with practical application. Am already looking forward to them.
  • #210
  • Jul 24, 2011 2:45pm Jul 24, 2011 2:45pm
Quoting aicccia
Is it because ema's inherently lag and this kills them in ranging markets?
Who told you that ?!?

On the contrary, even though they are part of the "lagging indicators" family, moving average crossover systems DO work.

Backtest them with all the futures contracts available and all the major currency pairs and you will always end up with a profit at the portfolio level.

However, if you backtest them with the stock indexes (like the S&P 500), they do not perform as expected and sometimes they lose quite frequently, as the S&P 500 for example is notoriously known to be a mean-reverting financial instrument. It is almost impossible to day-trade the e-mini S&P 500 with a moving average. On the other hand the indexes respond very well to over-bought/over-sold indicators, like the RSI.
  • #211
  • Jul 24, 2011 2:54pm Jul 24, 2011 2:54pm
Quoting Mr Breakout
It is almost impossible to day-trade the e-mini S&P 500 with a moving average. On the other hand the indexes respond very well to over-bought/over-sold indicators, like the RSI.
Cause Index's are choppy where as Forex is trend.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #212
  • Jul 24, 2011 3:05pm Jul 24, 2011 3:05pm
Quoting Turveyd
Cause Index's are choppy where as Forex is trend.
Exactly. The Forex market is simply THE best trending market (that's why banks and financial institutions love it), followed by all the interest-rate instruments, such as T-bond, T-note, Eurodollar (not the currency pair), etc...
  • #213
  • Jul 24, 2011 3:18pm Jul 24, 2011 3:18pm
Quoting Mr Breakout
Who told you that ?!?

On the contrary, even though they are part of the "lagging indicators" family, moving average crossover systems DO work.

Backtest them with all the futures contracts available and all the major currency pairs and you will always end up with a profit at the portfolio level.

However, if you backtest them with the stock indexes (like the S&P 500), they do not perform as expected and sometimes they lose quite frequently, as the S&P 500 for example is notoriously known to be a mean-reverting financial instrument. It...

Enough of this lagging indicator business......MAs work extremely well. It took me four years to figure out how to exploit them fully. They work fabulously in certain scenarios and in other scenarios they will kill your account. As I said, it took me four years to figure out how to avoid the "other scenarios". If you think it is as simple as waiting for one MA to cross another, you will be sorely disappointed. If it was that simple, the whole country would be FX millionaires.

I see your point Breakout.....and I agree......however;let go of the backtesting, and start studying the charts the old fashioned way. It's hard work. If you leave it to the computers, you will never learn MA concepts fully.
  • #214
  • Jul 24, 2011 3:26pm Jul 24, 2011 3:26pm
Quoting Troikaone1
I see your point Breakout.....and I agree......however;let go of the backtesting, and start studying the charts the old fashioned way. It's hard work. If you leave it to the computers, you will never learn MA concepts fully.
I would recommend the opposite. Stay with the backtesting, it is an unbiased way of finding what works and what doesn't.
  • #215
  • Jul 24, 2011 3:31pm Jul 24, 2011 3:31pm
Quoting Custos
I would recommend the opposite. Stay with the backtesting, it is an unbiased way of finding what works and what doesn't.
I doubt any backtest results from a computer could outsmart me. I would have to see it to believe it. I dunno. How can you backtest an effective MA crossover system? What does it look like and what does it look for............make me a believer..........lol!!!!
  • #216
  • Jul 24, 2011 3:34pm Jul 24, 2011 3:34pm
how do you backtest tea-leaf readings, or the shapes of clouds in the sky when the moon is in a quarter-phase and a solar flare erupts towards the northern hemisphere? lol.
Congratulations ScalaFX for coming out of the closet!
  • #217
  • Jul 24, 2011 3:36pm Jul 24, 2011 3:36pm
Quoting Troikaone1
I doubt any backtest results from a computer could outsmart me. I would have to see it to believe it. I dunno. How can you backtest an effective MA crossover system? What does it look like and what does it look for............make me a believer..........lol!!!!
I prefer computer backtesting over doing it manually, cause first of all the computer is not biased. Even if you try being unbiased personally, you will unintentionally make the results better than they are. A big problem in research. It is called researcher bias, you may wanna look that up.

Secondly, even random signals experience trends. Toss a coin a few thousand times, you will experience trends within the overall random outcome. Same goes with trading, if you have a system that produces random signals, but recently had a very good run (and a run can be anything from 10 to 1,000 trades or more), you might think you have a good positive expectancy system, when in fact you are just at a statistical outlier of a random system.

Computer backtesting is preferred cause it can show you ten thousand trades + and you really see if you have an edge or not. Manually it would be physically impossible to log in so many trades.

Well, anyways my belief, but I have a scientific researcher mentality. So for me computer backtesting makes more sense.
  • #218
  • Jul 24, 2011 3:36pm Jul 24, 2011 3:36pm
I would put my four years worth of data against any computer and would probably win because a computer cannot understand the difference between a good crossover and a bad crossover....it can only confirm that a crossover has taken place.
  • #219
  • Jul 24, 2011 3:39pm Jul 24, 2011 3:39pm
Quoting Custos
I prefer computer backtesting over doing it manually, cause first of all the computer is not biased. Even if you try being unbiased personally, you will unintentionally make the results better than they are. A big problem in research. It is called researcher bias, you may wanna look that up.

Secondly, even random signals experience trends. Toss a coin a few thousand times, you will experience trends within the overall random outcome. Same goes with trading, if you have a system that produces random signals, but recently had a very good run (and...
You are correct.....as I mentioned in my last post....a computer is unbiased. It can not differentiate certain things when you start talking about where the crosssover is occuring with respect to the trend. It treats all crossovers the same regardless of the circumstance. A human can make a much better judgement when you start introducing multiple variables that a computer cannot interpret.
  • #220
  • Jul 24, 2011 3:42pm Jul 24, 2011 3:42pm
Quoting Troikaone1
A human can make a much better judgement when you start introducing multiple variables that a computer cannot interpret
When you refer to "interpreting", are we talking about subjective interpretation that cannot be logically defined?
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