The Beauty of Moving Average Cross Systems

Sept. 15, 2021

When we talked about a 3-moving-average cross system recently, I got more feedback than I’ve gotten in weeks.

Moving average cross systems seem to be the people’s favorite.

Why?

As mentioned on Monday, moving average (MA) cross systems have been around for a long time. If you listen to any experienced fund manager talk about trend following, they always talk about MA cross systems. These famous managers either currently trade via an MA Cross or started their career with it.

MA cross systems are everywhere. Still. And with good reason.

If the fast MA crosses above the slow MA, there has been a change in trend. There’s no disputing it. No one knows how long the trend change will last, of course, but an MA cross definitely means something has changed.

And every big move can be traced back to an MA Cross:

But I’m not sure decades of data is why traders love MA crosses.

I think it’s because of the beauty.

Nothing looks cleaner or more impressive than a winning trade riding an up-sloping moving average superhighway.

Plus, the averages appear to put a force field under or over the winning trade we’re in, preventing our position from ever going into a loss.

A break above a single moving average is easy to understand, easy to see, and shows profit over the long-term.

An MA cross is even easier to understand and more pleasant to watch.

3-MA cross systems are better-looking still.

So, I thought it would be good to take a closer look at the 3-MA cross system I quickly mentioned a week ago. There are many ways to trade moving average crosses. This is one way.

Keep in mind, though, that this is an old robot. Actually, I don’t exactly remember all the details. It was many years ago. But it’s very straight-forward and showed good results.

Here’s a brief review.

3-MA Cross System
Long Entry: Enter when all 3 MAs are stacked properly (40 above the 50 and 50 above the 200). The opposite is true for Short trades.
Exit: When the fast MA closes below medium MA.

That’s it.

Here’s an example:

The left side of the chart shows a beautiful winning trade. (Is there anything prettier than that?)

Remember, no stop or profit target on this one.

Here’s the Performance Report on the 30-minute chart for GBPJPY from ’03-’21 trading 1 lot each time:

$179k of profit with only a $17k drawdown is impressive.

Did it work on anything else? Not really. The EURJPY 30-minute chart produced some profit and so did AUDJPY. But nothing like the GBPJPY, which is understandable. Trend following systems work best on things that actually trend.

It feels weird, though, not having a stop or a target. Would the system be even more beautiful with more structure?

In our next Newsletter, we’ll use one of my more recent MA cross robots to find out.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.