Why exactly do EMA crossover systems not work? | Page 19 | Forex Factory

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Why exactly do EMA crossover systems not work?

  • #361
  • Jul 25, 2011 11:59pm Jul 25, 2011 11:59pm
Quoting Turveyd
LOL thats rich coming from you Nubcake, 1 of the lower forms of life on this forum!!
Sir, there is absolutelty no need for that kind of behavior and talk. Even though I do not agree with Nubcake's ideas most of the time, he has the right to fully express himself in this Forex forum.

And like the great French writer, historian and philosopher Voltaire once said : "Je n'approuve pas un seul mot que vous dites, mais je defendrai jusqu'a la mort votre droit de le dire."

English traduction "I do not agree with what you have to say, but I will defend to the death your right to say it."

I will let you meditate on that.
  • #362
  • Jul 26, 2011 1:25am Jul 26, 2011 1:25am
Quoting Mr Breakout
Hi Troikaone1,

If you backtest a lot of trend-following trading systems you will not find any significant difference between a simple moving average system and an exponential moving average system, as they are both designed to capture one thing and one thing only, the trend.
I agree with you 100%......I'm just wondering if the originator of this thread was pondering if there was a difference. I guess we will never know heh?
  • #363
  • Jul 26, 2011 4:11am Jul 26, 2011 4:11am
Quoting Mr Breakout
Sir, there is absolutelty no need for that kind of behavior and talk. Even though I do not agree with Nubcake's ideas most of the time, he has the right to fully express himself in this Forex forum.

And like the great French writer, historian and philosopher Voltaire once said : "Je n'approuve pas un seul mot que vous dites, mais je defendrai jusqu'a la mort votre droit de le dire."

English traduction "I do not agree with what you have to say, but I will defend to the death your right to say it."

I will let you meditate on that.

He went into full on personal attacks cause he was bored nothing more, his ideas will flip to best create an arguement, as previously said low life POS!!

He deserves it trust me.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #364
  • Jul 26, 2011 4:39am Jul 26, 2011 4:39am
Quoting thelws
...
Not to digress further, MA can provide an edge as long as trends continue to exist. The day trends cease to exist is the day MA no longer provides an edge. Now, if you want to argue that logic, tell me why you think MA crosses will not provide an edge...
1. Any systematic system relies on some statistical property of the market. There is no guarantee that the property will continue into the future and even if it does continue if might not be strong enough to build a profitable system around.
2. Its not the trend but the trend relative to noise/volatility that is important for a trend following system. If the volatility increases you will get stopped out more often even if your directional bet is correct in the long run. If you increase your stop size then your R:R decreases and the system may not be worth trading.
3. With an MA systems its not just movement but the speed of movement that is important. If a sharp move occurs in a few bars the MAs will be too slow to cross and much of the potential move is over.
4. I'm not aware of any published studies that show that MA cross systems have been profitable in forex - I have seen them on stock indicies but you can't read that across to forex.
  • #365
  • Jul 26, 2011 4:43am Jul 26, 2011 4:43am
Quoting Turveyd
He went into full on personal attacks cause he was bored nothing more, his ideas will flip to best create an arguement, as previously said low life POS!!

He deserves it trust me.
"boohoo nubcake thinks i'm a complete contradictory loser".

anyone can go here to see what your story is and also have a laugh http://www.forexfactory.com/search.p...nduser&u=14618

tgm's posts speak for themselves. you need a clue.
Congratulations ScalaFX for coming out of the closet!
  • #366
  • Jul 26, 2011 5:14am Jul 26, 2011 5:14am
So many hostilities, and no there is no point to it
Time hides Nothing
  • #367
  • Jul 26, 2011 7:16am Jul 26, 2011 7:16am
Quoting jzw
Its not the trend but the trend relative to noise/volatility that is important.

Its not just movement but the speed of movement that is important.
Sorry to bother you, but could you expand on this subject if you dont mind?

This is interesting
  • #368
  • Jul 26, 2011 7:38am Jul 26, 2011 7:38am
Hmmmm..seems to be a lot of anger on this thread ...

causes me to wonder how many here are profitable traders ???
  • #369
  • Jul 26, 2011 1:49pm Jul 26, 2011 1:49pm
Quoting jzw
1. Any systematic system relies on some statistical property of the market. There is no guarantee that the property will continue into the future and even if it does continue if might not be strong enough to build a profitable system around.
There is no way on earth that the trend (our statistical edge) is going to simply disappear from the currency charts. The economy of each country does not change overnight, that's why it usually takes months and even years for a currency pair to fully and completely reflect this slow economic change (just like the price of milk does not triple one day only to come back to its original price the next day). And this creates a slow and steady trend we can profit from.

Quoting jzw
2.. If the volatility increases you will get stopped out more often even if your directional bet is correct in the long run.
Ever heard of dynamic stops and volatility stops?


Quoting jzw
3. With an MA systems its not just movement but the speed of movement that is important. If a sharp move occurs in a few bars the MAs will be too slow to cross and much of the potential move is over.
Not if you use and exponential moving average.

Quoting jzw
4. I'm not aware of any published studies that show that MA cross systems have been profitable in forex - I have seen them on stock indicies but you can't read that across to forex.
If moving average systems do not work on the Forex, the best trending market on the planet, nothing will!

http://www.forexfactory.com/showthre...51#post4805451

British Pound + $281
Deutsche Mark + $52,200
Japanese Yen + $73,913
Swiss Franc + $40,363

Note that the GBP/USD does not respond well to a simple moving average cross-over system, it is indeed a choppy and hard-to-trade currency.
  • #370
  • Jul 26, 2011 2:26pm Jul 26, 2011 2:26pm
Quoting Mr Breakout
There is no way on earth that the trend (our statistical edge) is going to simply disappear from the currency charts. The economy of each country does not change overnight, that's why it usually takes months and even years for a currency pair to fully and completely reflect this slow economic change (just like the price of milk does not triple one day only to come back to its original price the next day). And this creates a slow and steady trend we can profit from.



Ever heard of dynamic stops and volatility stops?




Not if you...


With all due respect, the time period you were testing had interest rates at much higher levels. If you were to re-run the tests for last two years, I believe you will see many of your examples that were in profit, would be at a loss. Your Commodities however that were in a loss during your test period, should be in a profit.
  • #371
  • Jul 26, 2011 3:49pm Jul 26, 2011 3:49pm
Quoting Mr Breakout
Note that the GBP/USD does not respond well to a simple moving average cross-over system, it is indeed a choppy and hard-to-trade currency.
The backtest results are interesting but I think everyone knows that diversified trend following systems are profitable. But most people on FF are not trading a basket of futures. They are trading a small number of currency pairs.

What the backtest results don't tell you is if this system would have been tradeable. Even if its profitable its simply too volatile to trade.

Finally if you look at the results they are not that great. The best currency the Yen returned 1.5 pips / day and required a ~300 pip stop (5 ATR).

$74k on Yen futures = 6000 pips (74000 / 12.5) over 16 years
or 1.5 pips / day (6000 / (16 * 250))
  • #372
  • Jul 26, 2011 4:17pm Jul 26, 2011 4:17pm
Quoting almo
With all due respect, the time period you were testing had interest rates at much higher levels.
Hi Almo and thanks for your input,

Even though interest rates can and do move the currency market, I fail to see how they could have any influence whatsoever on the profitability of a moving average cross over system like the one I described.

Are you suggesting that currencies (or commodities) have a different market behavior when the interest rates are high (or low)?

Remember, we are only trying to capture the trend on each of these 21 markets, regardless of its direction or the state of the economy.

Also keep in mind that there is no such thing as a bear or a bull market in the Forex, there are only trends!

Quoting almo
If you were to re-run the tests for last two years, I believe you will see many of your examples that were in profit, would be at a loss. Your Commodities however that were in a loss during your test period, should be in a profit.
I am way too busy backtesting my own systems so I did not backtest this system from 1999 to 2011, but I am sure that you won't find any significant difference as far as the profitability of this system is concerned. I am even certain that the profits should be even much much higher, just look at the commodities and currencies charts between 2000 and 2011 and you will see a lot of extremely powerful trends.

And each one of them was necessarily captured by the system.
  • #373
  • Jul 26, 2011 4:22pm Jul 26, 2011 4:22pm
Quoting Pipalicious
Sorry to bother you, but could you expand on this subject if you dont mind?

This is interesting
Mr Breakout suggested a 13,39 SMA so I marked those on a 2011 Yen chart because its a good illustration of what I meant.

If you look you'll see that the Yen had some monster trends but a 13,39 SMA cross gets hopelessly whipsawed and amazingly gets you long at 85 which is the high.

Most people looking at the chart would say that the Yen had several trends but this combination of MAs lost money over this period. And it lost money because the trends are too fast and reverse too quickly.

I'm not really saying anything that novel. All technical systems rely on some statistical properties of price to make money. For any system its important to know what the properties are and be happy that they will continue to be true in the future.

Beyond that a system has to be tradeable and I think this is where MA crosses fail. Even if they have an edge its pretty small and not worth trading. There are simply better trend following methods than MAs.
Attached Image (click to enlarge)
Click to Enlarge Name: USDJPYDaily.png Size: 45 KB
  • #374
  • Jul 26, 2011 4:26pm Jul 26, 2011 4:26pm
Quoting Mr Breakout
50 to 100% a year? Are you sure this is not a typo Custos?

Wow, even the top traders in the world cannot consistently double their money every year or else in 20 years they would have $2,196,431,025,250 in the bank, starting with only $5,000.

That means that at some point you won't find any Forex broker (or even a central bank!) in the world rich enough to take the other side of your trade
no typo. Obviously it is bound by liquidity issues. But yes, on average that is what my systems combined create. Let's see how they will behave in the next 20 years
  • #375
  • Jul 26, 2011 4:51pm Jul 26, 2011 4:51pm
Quoting jzw
Mr Breakout suggested a 13,39 SMA so I marked those on a 2011 Yen chart because its a good illustration of what I meant.

If you look you'll see that the Yen had some monster trends but a 13,39 SMA cross gets hopelessly whipsawed and amazingly gets you long at 85 which is the high.

Most people looking at the chart would say that the Yen had several trends but this combination of MAs lost money over this period. And it lost money because the trends are too fast and reverse too quickly.

I'm not really saying anything that novel. All technical...
Not so fast JZW, Please reread the trading rules carefully, here is the first rule:

Buy on the open when the 13-day moving average of closes crosses from below the 39-day moving average and yesterday's close is greater than the close of 40 days back. Do the reverse for short trade.

Now go back to the YEN chart and notice that the second condition was never met.

Cordially.
  • #376
  • Jul 26, 2011 6:23pm Jul 26, 2011 6:23pm
Quoting Custos
no typo. Obviously it is bound by liquidity issues. But yes, on average that is what my systems combined create. Let's see how they will behave in the next 20 years
Oh I see, but just keep in mind that if you trade 10 different trading systems at the same time and each system is making 10% a year for example you are NOT making 100% a year (10 times 10%) but still 10%!

Amazingly, most traders have a hard time understanding this fact
  • #377
  • Jul 26, 2011 6:31pm Jul 26, 2011 6:31pm
I did see there was another rule but by hand its too much work to check and the long at 85 would meet the additional criteria.

By adding another rule the system is not an MA cross since your criteria filters out some of the trades that the MA cross generates.

I do believe that some combinations of MAs are historically profitable. I just don't believe that any such system could be traded. I just don't see anyone trading a system that returns 1.5 pips / day and requires a 5 ATR stop.

Anyway, all I wanted to illustrate was that there have been trends that have been too sharp and volatile to be captured by an MA cross system.
  • #378
  • Jul 27, 2011 12:12am Jul 27, 2011 12:12am
Quoting jzw
Finally if you look at the results they are not that great. The best currency the Yen returned 1.5 pips / day and required a ~300 pip stop (5 ATR).

$74k on Yen futures = 6000 pips (74000 / 12.5) over 16 years
or 1.5 pips / day (6000 / (16 * 250))
Again, if you trade trend following systems you need to trade a lot of markets in order to capture 1, 2 or 3 mega trends a year and make money (that's the whole idea behind the Turtles system by the way). You cannot simply trade the Yen, the Canadian dollar or the Nikkei and expect maximum results at the end of the year.

In any case, don't let the seemingly small profit per trade fool you, with just 5 contracts per trade you could have made over $100,000 a year for 16 years trading this simple moving average cross over system.

The point is that moving average systems work, don't let anybody tell your otherwise, you just need to diversify.
  • #379
  • Jul 27, 2011 2:31am Jul 27, 2011 2:31am
Quoting Mr Breakout
Oh I see, but just keep in mind that if you trade 10 different trading systems at the same time and each system is making 10% a year for example you are NOT making 100% a year (10 times 10%) but still 10%!

Amazingly, most traders have a hard time understanding this fact
okay, you probably have no knowledge in portfolio management. I try to reduce my drawdowns by employing different systems and applying them to different pairs. The systems and pairs complement each other. That way I can tune up my lot-size and achieve the 50 - 100% return.

I think it is you who has a hard time understanding that in portfolio management 1+1 is not always 2, but with the right combination it can outdo individual performances.
  • #380
  • Jul 27, 2011 3:11am Jul 27, 2011 3:11am
Quoting Mr Breakout
...In any case, don't let the seemingly small profit per trade fool you, with just 5 contracts per trade you could have made over $100,000 a year for 16 years trading this simple moving average cross over system.

The point is that moving average systems work, don't let anybody tell your otherwise, you just need to diversify.
Agreed they do work. But the two qualifiers are key.
1 - diversified across many uncorrelated markets
2 - long term e.g 5+ years

You can't apply this to a few currencies and expect to make money.

You don't give a CAGR figure in your backtests but I suspect that you need a pretty big (1M+) account to trade it. If you trade the Yen with 5 ATR stop and 1% risk/trade then you need $375,000 to trade 1 yen contract. (5 * 60 * 12.5 * 100). A return of $74k off $375k capital over 16 years is a 1% CAGR.

Even if you trade 1 contract / $100k capital that's only a 3.5% pa return.

So I accept your point that it works, I just think in the real world no one would use it.
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