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
Edward Revy,
http://forex-strategies-revealed.com/
Copyright © Forex Strategies Revealed
I have found using standard error bands around the price help identify when expected return is high =(opportunity), and when expected return is low = (exit). standard error is an estimate of volatility and therefore can help effectively manage a trade. Couple this with Chaikin, Fisher Transform, Stochastic RSI, and or Ultimate Oscillatory and one can capture a multitude of coincident confirmations increasing the likelihood of success and flawless execution.
few things. whipsaw cannot be avoided. sorry about that. if you do not like getting stopped on whipsaws you cannot trade trend following strategies. trend trading with ema crosses should be done on daily charts. less noise. every cross can lead to huge trend. you never know what the market will do next. ema cross. look for entry set stop and manage trade.
correlation theory
I observed EURUSD and GBPUSD go same direction..GBPUSD is faster.wht u say ?
Hello Obike
How much of leverage you are using normally with these systems?
Happy Trade.
Hello Emy
definitely one cannot depend on the MA or anyother system without the aid of other indicators and methods (i.e. Fundamentals). I've seen an almost perfect MA system pointing to the right direction but the news outcome at that moment blew it off a different direction amidst the trend. So therefore one needs to have a lot of knowledge in combining fundamental factors and some indicators to his/her system to achieve more successes at all times.
MA's cant be backtested but i use an offline simulator (FOREX TESTER)to backtest strategies i get here and others i've put up myself. Backtests i conducted with this simulator helped me understood MA systems very well and when i tried it on demo i get almost the same result, hence thats how i know MAs are the best for me.
Secondly when u plot the MAs on your chart, scroll back 6months or further backwards and take a look at the crosses, filter the good ones from the bad ones and you'll see that almost every good cross is worth hundreds of pips if not thousands of them. Moreover you'll notice how seemlessly the entry and exit works.
For every month, there's the possibility for a long trend and a very longer trend which is easily detected with MAs. If you can get understand a good MA system and get a good trend with it, you dont need to trade for months and also if you're good in understanding correlating FX Currency Pairs then u'll double your profits.
hello Mr Obike,
I quite agree wit u that MA are the most wonderful u can use but u also need to confirm wit other good indicators to be sure.Pls how do we chek the system to c how it works. Cheers
Emmy
lf you think that the system is ok,then i would say you try using 100smooth and 9ema or if you choose 9sma,and compare.let me know what you think, and like you said,moving averages are really the boom,thanks.
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