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Dual Moving Average Crossover with SMA and EMA

 
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gail.behrend

Dual Moving Average Crossover with SMA and EMA

Hi Folks,

I have been following Doug Eatough's Trade Development classes for about a year now and testing them in a non-beeline simulated account, with excellent results!

In the last few weeks, Doug has started teaching us a new strategy using the simple crossover of two moving averages: a 20-period SMA and a faster 5-period EMA. This one is proving to give even better results than the others I have tried - at least in the current market conditions. Here are the details for those of you who are interested:

Dual Moving Average Crossover with SMA and EMA
This strategy can be used on any timeframe, but I personally like using it with the H1 timeframe. Again, it is a very simple strategy that uses the crossover of a faster moving average relative to a slower moving average to indicate an impending change in trend. I check the H1 charts for all pairs, looking for The EMA [5] to cross over the SMA [20] line. If the EMA breaks above the SMA, I will be looking to go long; if it breaks below the SMA, I will be looking to go short. If the EMA crosses back over in the opposite direction, I exit the trade.

  • Market Filters:
    • H1 timeframe, 150 bars
    • All pairs, provided spread is reasonable (below 3 pips)
    • Trend indicators:
      • Use SMA [20] to filter for long term trend.
      • Use EMA [5] to filter for shorter term trend, as an entry signal.
    • Market structure: Use drawing tools to highlight support and resistance levels – avoid trades where price action is at, or moving towards, support or resistance.
    • News: Avoid trading affected pairs until after the news has been integrated by the market (at least 30 minutes after the event).
    • Session times: all sessions within my trading hours (from 14:00 GMT to 05:00 GMT, avoiding dead times with wild spreads)
  • Setup Conditions:
    • I will only trade this strategy on the hourly (H1) charts.
    • If near support/resistance, only take the trade if price is moving with the long term trend and away from the support/resistance level (i.e if it has already broken through the S/R level).
    • Avoid low volatility, sideways ranging markets.
    • Avoid pairs where support/resistance levels are too closely spaced to allow room for the trade to develop. Need to have at least a 2:1 reward ratio.
    • Avoid pairs where there is a lot of noisy action (big wicks)
    • Avoid taking trades if there is no recent signal (i.e. more than 3 candles since the EMA crossover)
    • Avoid taking trades if there is no clear signal (e.g. if the EMA and the SMA are so mushed together it is hard tell them apart.)
  • Entry Trigger:
    • Buy when the following conditions are both true:
      • Price is above both the EMA (5) and the SMA [20]
      • The EMA has recently (within 1-3 candles) broken above the SMA.
    • Sell when the following conditions are both true:
      • Price is below both the EMA [5] and the SMA [20]
      • The EMA has recently (within 1-3 candles) broken below the SMA.
    • The current candle must confirm the direction.
  • Targets:
    • To let my winners run, I avoid using automatic take profits or trailing stops.
    • I manage my profit taking manually.
  • Stops:
    • I use a stop loss of 50 pips to allow for market volatility and to stay in the trade long enough for it to profit long term.
    • I will manually trail my stop losses to preserve 50% of any profits above 20 pips, while still leaving room for the trade to survive short-term pullbacks.
  • Position size:
    • Flat position size of 0.04 lot per order
  • Trade Management Rules:
    1. Check ongoing trades every 4 hours.
    2. Manage losers first. Then preserve profits.
    3. Check that the EMA is still confirming the entry direction.
      • For a long trade, the EMA should still be above the SMA.
      • For a short trade, the EMA should still be below the SMA.
    4. Close the trade if the EMA crosses over the SMA in the opposite direction:
      • For a long trade, exit when the EMA line crosses below the SMA line.
      • For a short trade, exit when the EMA line crosses above the SMA line.
    5. Manage the winning trades:
      • For trades with a profit of 15 -20 pips, move the stop loss to preserve 3-5 pips of profit – this ensures the trade will survive most pullbacks and makes allowance for spread variation during slow periods.
      • For trades with a profit of more than 20 pips, move the stop loss to preserve 50% of profits and let the trade run until the next check-in.
      • If the EMA is getting close to crossing to the opposite direction (i.e. merged with the SMA line), can either close the trade early to take profits or let it run until the next check-in.
    6. After managing existing trades, identify and place new trades that meet the entry conditions.
    7. Let the trades run until the next check-in period (in 4 hours) – turn off the computer until then, to avoid overtrading.

So far the results have been so encouraging (over 500 pips in the last few days) in the demo accounts, that I am starting to use this strategy in my Silver account too. I'll keep you posted how that works out! If I make it to Gold 1 in the next week or two, I will have succeeded!

This strategy can work on all time frames, but I have been using it on the H1 for multi-day trades.

If you decide to give it a try, I'd love to hear how it goes for you!

Good luck and happy pipping!

Gail

P.S. For anyone struggling in Silver 2, like I was for a whole year, I can highly recommend Doug's Trade Development class! It taught me the much-needed skills of patience and self-discipline I needed to finally move forward into Silver 3.

 

 

Mon, 09/03/2018 - 10:41pm
 
photoguyJeff

gcbehrend,
Thanks for the very complete explanation you have given. Very complete. I will try it in my simulated account and hope to use it in Silver 3. I appreciate the strictness of the strategy. It makes it much easier to follow than just giving generalities. I have realized very much in the last 10 days how important my entries are and how I need to be patient for them to occur. Sometimes we just don't see them in time and sometimes they just are not there. But with observation I know that plenty of them will show up for lots of pips.

Best of luck as you move to Gold 3 and move up higher in funding.
Jeff

 
photoguyJeff

Gail,
I have been studying your strategy and going back on all the pairs and looking at how this would have played out in trades. WOW!!! This is impressive. I can't wait for Sunday afternoon to give it a try. I will start in my demo acct, but I think it will work well and then move into my Silver acct. How did you come up with this idea? Seems simple enough, but yet it seems to do so much better than other crossovers I have seen. And again, I really like your specific rules for setup and entry and exit. That I really need. Please keep me advised of your results moving forward and of any tweeks or changes you make to the strategy. I am truly interested. And thank you again for sharing. I really needed this.
Jeff

 
msrich18

I have done a 6/24 xover, even coded it to take trades automatically. Worked on some pairs, of course much better in a trending market. I was going to run it on auto in a demo account starting Sunday, but might look at your system to see if it is an improvement. Thanks for the share!

 
Pips for Profit

Thanks for sharing!! Seems unbelievably simple....Will give a try in simulated account. :)

 
notograph

Thanks very much Gail!

I've just started to follow Doug class.
This will pretty much help me to understand his strategy.

Note

 
kingofwood

thanks for the info...1 question on exit. Are you exact on the exit at crossover or is their a fudge factor to eliminate whip saws?? thanks...mike

 
S J

Thank you so much Gail;

I'll defenatly give it a try to see how this strategy works for me!

Result will be posted.

Thanks gain.

 
mbratchell

Thank you for your precise information

 
rdbur

gcbehrend I had a look at and practiced a bit with your system. I swapped the 5 EMA and made it a 5 HMA. The color change helps a little letting you know when you need to take action. I think it makes it a little tighter. It seemed to work fairly well as long as you remember you conditions for entering and adding on. For sells - PA has to be on the bottom side of BOTH ma's and buys PA needs to be on top of the ma's. I think it'll work for you. Good luck and good trading!!!! Just a thought and for what it's worth. When you're using ma"s like this, when the price comes back to the longer term ma, that's when you need to really be paying attention to the price because that's where you are going to do one of these things. Add on, get out, enter a new position, etc.

 
oramb

Thanks for the information, I will give it a try. It does seem simple but the longer I am doing this the more I believe simple is better.

 
gg99sites

I am trying to follow your strategy... only change being HULL 8 and HULL 13....

 
rayholding1234

just an update on my previous post. I have picked up over a 1000 pips during the last week just using the gbp six pairs. Each day when I get up about 10am to 11am (I don't go to bed till 3-4am) My computer is left on overnight and will be on my alveo page. Last two nights have taken a couple of trades where the charts look positive with my default take profit of 40 pips and each morning I have woken up to 80 pips even before \I start the days trading. I have changed my selection process for determining direction . Earlier in the year I was using Josh Martinez's London Break method ie once the 9am (10am for me in spain_ candle was complete you take the last five candles not including the 9am that's just completed and if out of the five three were down, you went long, if three were up you sold. However, although it worked earlier in the year and got me through silver and gold , I have recently changed my selection to the T-Line system promoted by a chap named Steve Bigalow (on you tube). He uses the 3, and 8 EMAS with a 50 and 200 SMA. If market is above the 50 only look for longs and if below look for shorts, but only if the 3 and 8 are correspondingly above or below the 50. Once you have determined that, the market for a long, should be above the 3 and the 8. You will see that the market hugs them and if it moves away from the 8 it will invariably come back to test the 8. That is an opportunity to buy back in . Once you are in you can stay with it until a candle closes below the 8 and then you can take your profits. However, I do not run the profits as I usually take a profit between 10 to 20 pips and look to get back in on a dip. Today I have sofar taken 260 pips in 14 trades, including 17 on a eurusd (I know not one of my six pairs) but it was the NFP and it usually moves eurusd.. ALL the rest on the three remaining pairs which are not still tied up in deficits. I have been holding gbpusd since 21st September , cad since the 1st oct and jpy which I missed taking while I was gardening, all on the hourly chart. However, my 1250 deficit a few days ago is now down to 200-300 pips so at the moment its going in my direction. 40 take profit and 0 stop loss, not conventional but working for me. I have one loss in over 100 trades and the last 74 have been free of loss. My aim is to get 100 trades without loss rather than a target each day or each week of pips. I simply trade as I see it, no plans of entry or exit, (other than take profit anything over 10 pips). I would urge you to find the T-Line by steve bigalow on you tube and watch the video. You may not be able to trade the gbp pairs in view of the time difference but if you can I hope you find them as profitable as I do.
Good luck to the HIVE!

 
rayholding1234

I would like to revise what I said previously regarding the T-line strategy, I went through it again on you tube and realise that the 50 and 200 smas are merely for support and resistance to see whether market is held or pushed back. Also they are not important in choosing when to enter a trade. What is important is that when the market goes through the 8 and closes above or below that is what determines the direction to trade and you can use stochastics 12-3-3 to confirm whether market is in an oversold or over bought position. Don't exit trade until market breaks back through the 8. If marketmoves away from the 8 then it will invariably move back to test the 8, therefore if you get a candle signal such as a doji or spinning top or a bullish or bearish engulfing get out right away if market breaks the 3. If it comes back to test the 8 without closing below or above it and bounces you can always get back in and resume the trend until it does get broken. He currently has added a 34 ema instead of a 20. I never put the 20 in , in the first place, so didn't mention it in my previous splurge but as you can see the 3, 8 and 34 are all Fibonacci numbers which may be significant. Do look on you tube he has done quite a number of free videos which you may find helpful.
So happy trading and be buzy bees!

Sun, 10/07/2018 - 3:25am
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rdbur

This is an interesting system. If you trade using this , remember your pivot points and watch what happens right around those support/ resistance areas. Pretty interesting and simple. I going to practice with it. Thanks