Home Trading Strategies Moving Average Crossover Secrets (The Truth Nobody Tells You)

Moving Average Crossover Secrets (The Truth Nobody Tells You)

Moving Average Crossover Secrets (The Truth Nobody Tells You)

the moving average crossover strategy okay you have probably heard about this but a question is does it work or is this just another hocus pocus in technical analysis okay so that’s what you’ll discover in today’s video and no the answer is not what you think so keep watching so now to test whether moving average strategy works in trading right we will back test it right using historical data using a simple moving average strategy and it should at least write beat a buy and hold on the SMB 500 to claim that it works as it beats the market okay so this is what we are trying to do over here so to back test this moving average strategy we are gonna be back testing it from the year 2000 to 2018 across these three different markets the SMP 500 euro yen and the US t bond so these are the rules of the moving average strategy that we will back test on we will buy when the 50 ma crosses above the 200 ma we go short right when the 50 ma crosses below the 200 MA we use 380 R as our trailing stop loss and our risk management is one percent of our Conrad on each trade so to put it simply I let me just share with you an example of a long setup so you can see over here okay so this is on the S&P 500 the blue line is the 50m a black line is 200 MA so you can see that the cross over a cut on this candle over here so I’m not sure you can I think can see this okay this is where the 50 ma crosses above the 200 ma alright so this is our signal to buy and our stop loss right is 380 R so what is 380 are it’s very simple you just pull out your ATR indicator I got it over here and find out what’s the value so to make my life easier okay let’s assume the ATR value the current value is $30 so tree ATR it’s tree times 30 which gives you $90 okay so your trailing stop loss for now it’s $90 so let’s say you got it three prices let’s say two seven seven six right this is where you buy the S&P 500 and your 380 our trailing stop loss is $90 so your initial stop loss on this trade okay it’s two six eight six okay close to let me just remove this two six eight six this is your 380 our trailing stop loss when you enter the trade so now let’s say for example the the market moves in your favor let’s say you know what happens now is the SMP 500 it moves up higher okay let’s say now the price is two eight four four let’s see now the ATR value in deep slightly right now let’s say let’s assume now is $25 to make my life easier so what I’ll do is I’ll take two eight four four minus three ATR so one each here right now is $25 so three ATR is drumroll to $75 so we take two eight four four which is the highest price right now – 75 and we get to seven six nine so if you imagine this right right now the trailing stop loss is about here let’s say this black line over here about about here okay so if the price let’s say it comes down lower okay the market comes down lower and closes below this black line this means our trailing stop loss is hit okay so this is what I mean by you know a 380 are trailing stop loss as the market moves in your favor okay you calculate what is the three ATR value right and – it from the heist okay let me repeat once again right as the price moves in your favor okay you will calculate what is the latest 380 our value and minus it from the highest and that is your trailing stop loss so if the price closes below your trailing stop loss you exit the trade alright so this is a for a long setup example and the opposite is just for the short setup right everything is just inverse okay so now the important thing is what is the results okay so I just share with you the example of how that simple crossover strategy works right now this is the results so you can see that over the last 19 years this strategy made about 1 three percent over the last 19 years and this is the results for each year you can see that in 2000 right lost about 1% 2001 – 0.

4 percent and all the way down till you know 2018 over here so generally this is a losing trading strategy so the first secret is this moving average crossover don’t work well with small number of markets so let me repeat that once again right moving average crossover it doesn’t work well with small number of markets and now before we claim that this trading strategy doesn’t work right I wanna ask you a question how does a moving average crossover mix money it’s not a trick question is just a straight question how does a moving average crossover mix money I’m sure you can agree that it makes money when there’s a trend right when you can write a trend okay when you can capture that then move right that mean of the move that’s how a moving average crossover makes money and how does it lose money when the market is in a range it’s not going anywhere you get chopped up and down that’s how you lose money so now how can we know improve on this maybe if we trade more markets we could write more trends and if we write more trends we might be able to you know make more money so let’s try it so now instead of the three markets that we treat earlier why not we now trade 20 markets right these 20 markets cool copper silver palladium platinum SMP euro yen euro dollar Mexican peso British Pound T bond bubble all the bond market I mean all the bond markets are other bond markets and as well as agriculture and commodities the rules exactly the same right no difference to it by 150 crossed above 200 go shot went 50 crosses below 200 380 our trailing stop loss and a 1% risk the results so now the back test result of this now is over here you can see number 2 okay you can see that now this is the results right over the last 18 years now you can see that it’s much better and we look at the Enel return now it’s 4 point three percent so much better than the results you have seen earlier and did we do any difference to it no all we did is retreat more markets so secret number two is this moving every crossover it works best when you treat many different markets okay I repeat once again moving average crossover it works best when you trade many different markets and the reason is simple is because you know right that it makes money during training periods and if you trade more markets you capture more trends you make more money tada okay so so now before I move on right I want to say that a big mistake that many traders make is that they focus a lot on the parameter so if like you know 50 and 200 doesn’t work what they’ll do you maybe change the 50 to maybe 35 and then the 200 change do you know 189 moving average something like that keep adjusting the parameter right to make the strategy work and this is what we call curve fitting right it’s like it’s like this right it’s like you know you see the past year exam question paper and results okay for example you know whenever you were student in the past all right you look at a posse examination questions and answers so you look at the questions and you memorize all the answers to those questions you memorize all the answers but what happens when you take the exam this year good answers that you memorize help you in the paper that you’re sitting it’s unlikely because you memorize those answers it’s like you know memorizing those answers for the sake of memorizing it and when the questions change a little that’s it right you do not know how to answer it and it’s the same for you know coffee thing in this a moving average crossover strategy you know if like you know taking instead of 50 and 200 you change it to you know 37 by say 190 and stuff like that this is what exactly you’re doing but instead now let’s say you don’t memorize the answer instead you understand the concept behind the questions so now when you take the exam paper this year no matter how they turn into is the question if you understand the concept the principle you still be able to answer it right without memorizing in answer you can still understand it you can still answer it because you understand the concept of the questions and this is what we mean right by you know over here right same thing so secret number three is this right I wanted to focus on the concept not the parameters so whenever you’re trading strategy is not working stop trying to be no fine tune the parameters or I trying to know make things work no focus on the concept and let me prove this to you now instead of you know going with the 50 by 200 ma let’s say we go with a number like you know 17 by 1 8 9 so we can see over here right 17 by 1 8 9 ok we take we buy when the 17 ma crosses above the 1 8 9 and we go shot when the 17 crosses below D 1 8 9 and again we trade 20 markets and it gets in the results right ain’t no written 12 point 96% right it still beat the market and if you don’t see the urine year breakdown it’s pretty much all over here ok we have you know change the parameters you can change the parameters to any way you like but if you get the concept correct right chances are your trading strategy will make money but if you get a concept wrong then you know it’s tough luck so for example again let’s say we do the same parameter 17 by 1 8 9 but this time around we just trade that same three markets you can see that a no written 1.

3% and doesn’t be the market and really this is the year on your breakdown so can you see the point that I’m trying to bring across this is so so so important ok so secret number three is this focus on the content not the parameters and as a trader right there are many different concepts out there not just what I just share with you so for example the concept that I just shared with you it’s about you know market exposure exposing yourself to more market so you can increase the odds of you know writing trends and making more money for this are moving average crossover but that’s not the only way maybe let’s say you know you are a pullback trader you want to trade pullback okay so if your strategy is not working as well as you’d like to what will you do okay now past me right what I’ll do is I’ll look for the best parameter maybe I should buy a pull back towards the 20-day lo o to need a loan not working maybe I’d buy towards the 25 or maybe the 30-day low alright by now you are wiser you know that you know you should focus on a concept so if your Poobah trading strategy is not working the first question is maybe I want to be trading pullback in an uptrend maybe if I’m trying to buy on a buy it in an uptrend or if I’m trying to shot pool backs on a shot in a downtrend I want to have a trend filter to make sure that I’m trading in the same direction of the Train all right so this is a concept that you have to consider not you know what is the best parameters right maybe the five-day load attend a load a 20-day low I focus on the concept or another example I can share with you is you know breakouts you know maybe you tend to buy breakouts and you realize man market always reverse after I buy break out so it’s too late whenever I enter maybe that’s because you’re buying breakout off the move haircut maybe that’s when volatility is high maybe that’s where you know the the profit potential is really gone so why not consider you consider buying breakouts when volatility is low when the market is still in a tight range when nobody’s paying attention to the markets may be buying breakouts in such a market environment might be more profitable for you so there is another concept right – what I call market volatility so yeah these are definitely things that you have to think about there is no one-size-fits-all but Ally’s right I hope I got you thinking in the right direction you know and stop focusing on you know I should buy the 50-day hi always the 55 hi better or is the 20 mm baton in a 30 ma you know what’s the best indicator settings you know and stuff like that right so often I see this question hey Raina which is the best indicator which is the best time frame which is the best break ups – by focusing all on the parameters and not the concept so now you’re wiser now I hope so with that said let’s do a quick recap shall we number one moving average crossover don’t work when you treat a few markets why now you know the reason why is because moving average makes money when there’s a train you trade a few markets not many trains you’re probably gonna get chopped up during the range markets number two moving average crossover works best when you trade many different markets more trends more money to be mean and finally we spoke about a very important thing which is focused on the concept not the parameters okay’s focus on the concept right and that’s how you take your trading to the next level if you keep focusing on the parameters you’ll find that you just go in circles and you know you know like ahem stone will you keep running running running running and you’ll never get out of the wheel okay so focus on the concept not the parameters so that’s it I’ve come towards the end of this video give me a thumbs up subscribe to my youtube channel if you’ve enjoyed it any comments let me know below and we’ll be in touch you


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