Exit approach #8 (For EMA, SMA crossover based systems)
Submitted by User on July 8, 2010 - 06:36.
Submitted by Obike C. O.
For my system I use 10SMA, 26EMA & 200SMA. I have found Moving Average Systems quite reliable and best for trending market. If you can understand and master price/market patterns then you'll definitely have more winners than losers.
I've found this new system here quite interesting due to its simplicity and similar logic to mine. The only difference is the RVI indicator which I find very useful to determine beginning or change in a trend and further confirmation to take a trade after a cross.
From my extensive research on simple average systems, exiting seems to be a major challenge but I came up with a solution.
When u study the behaviour of the system, you'll find out that exiting after an opposite cross seems to be safe but most times you'll lose more pips and less gains. So what I do is that I place two simultaneous orders but different lot sizes bcos its evident that if a good cross happens, the tendency for the trend to stay very long is high but due to price unpredictability, the tendency for the trend to change instantaneously is uncertain as well.
I usually place my first order with a high lot size and take profit is quite close to the nearest previous high or low for the previous day(s) or week(s). Then at the same time I place an immediate second order with a moderate lot size which I allow to stay on until an opposite cross occurs or RVI occurs or my personal target is reached. With this, I don't get to bother about exiting at the peak of the trend bcos I quickly grab my pips when the trend is hot with my first order, take out the profit and allow my second order to sail on.
From my research on this system I noticed some interesting observations which might be very useful for traders attempting to use this system.
1. Good trends detected with this system stays usually for weeks or days with the 1hr charts & 30mins chart.
2. After such trends changes or ends, the probability for ranges and whipsaws to occur is very very high bcos market tends to readjust and so one should be very careful not to jump into the market immediately after a lengthy rally occurs.
3. Market instability or ranges or whipsaws as in No 2., usually last for days and sometimes weeks before a new trend begins. Sometimes trends start rebuilding at the beginning of a new month even after a lengthy rally has occurred.
4. Use support and resistance tools to know when to jump in when ranges or whipsaws occurs after a lengthy rally. I usually draw a horizontal line on the previous highest high to the recent highest high or previous lowest low to the recent lowest low for breakouts from ranges and whipsaws.
I tried a backtest from January to June 2010 for EURUSD, GBPJPY & GBPUSD with a 1000 USD and got about 120,000 USD.
For me, moving averages seems to be the most accurate tools for long term or mid short term trades. But you need to understand the market so well, practice, practice and practice to be perfect with it.
Obike C. O