![]() ![]() A trend filter in a higher time frame as well as a block filter could be added. The main benefit of this trading strategy based on moving averages is its simplicity. The strategy appears to prefer short time frames. As soon as the span parameter is increased to 20 or 30 periods, trade results worsen. Learn how to use a simple moving average to confirm established trends, along with the pros and cons of applying it to different time frames. The block filter rejects all signals which occur during a specified period of time, in this case outside the main trading hours.ĭifferent settings for the SMA did not yield better results. An improvement could be to add a block filter. The current price is Rs 300. The majority of the signals resulting in a losing trade occurred outside the main trading hours of the market. Campus Activewears stock price has recently risen above its 20-day Simple Moving Average (SMA) of Rs 300.08. Of these 21 signals, 11 resulted in a profitable trade and 10 in a losing trade. A total of 21 trading signals were detected. To test, we ran this strategy over a random period of 14 days. Of course not every trade will run as smoothly as these two examples. The position reaches its target about one hour later (red zone). When the SMA crosses back below the WMA at 10h20, a short sell position is opened (red arrow). The target is reached at 06h00 (green zone). A long position is bought at around 04h30 (green arrow). This example shows a long trade and a short sell trade. The profit target is a modest 20 pips which should be hit fairly quickly. We tested the strategy on the major forex pair EUR/USD using a 10-minute time frame. When the SMA crosses the WMA downwards it is considered a bearish event and the strategy opens a short sell position. When the SMA crosses the WMA upwards it is considered a bullish event and the strategy buys a long position. The WMA is set to 144 periods and the SMA to 5 periods. When calculating a WMA, the more recent the price the more relevant it is, thus the more weight it is given. When calculating a SMA, every traded price has the same weight. The strategy has a fixed target of 20 pips and a stop loss of 15 pips.Ī weighted moving average is a variation of the simple moving average. A weighted moving average (WMA) serves as trend indicator and a simple moving average (SMA) serves as the trigger for trading signals. This strategy uses two different moving averages. The final part of this series about day trading using moving averages shows a simple but an apparently effective day trading strategy for forex trading. ![]()
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