moving-average cross-over system for forex

[loop101]

Sitting here in my plastic trailer, I was testing some old trading ideas in Amibroker, trying to see if anything would work with Forex. I found one that looks interesting. It is to swingtrade using 2 moving averages. One is the SMA of the CLOSE, and the other is the SMA of the OPEN. Let's call these:

CLOSE_SMA and OPEN_SMA

You go LONG if the CLOSE_SMA is OVER the OPEN_SMA. This means that the closing prices are, on average, above the open. So you are in an uptrend. I call this a CROSS_OVER.

You go SHORT if the CLOSE_SMA is UNDER the OPEN_SMA. This means that the closing prices are, on average, below the open. So you are in a downtrend. I call this a CROSS_UNDER.

You are always in the market, either LONG or SHORT.

If there is a CROSS_OVER during the day, you close your current SHORT position and open a new LONG position at the NEXT day's OPEN price. You don't flip-flop during the day. My FX data provider publishes at 5pm, so I would close old positions and open new positions around 6pm.

In my tests, I used a starting account balance of $10k, with $1k placed on each trade. No compounding of profits. This keeps the charts from going crazy because of an extreme good/bad year. The ideal is a steady increase in the account balance. You can fiddle with leverage and compounding to increase profits/losses.

I let the system do walk-forward testing with an anchored starting date. This means, the system was always using all the previous history (from the beginning of time) to determine the best system parameters. Some people use a sliding window of using the previous 4 years data to predict the next 1 year. I always use ALL previous years to predict the next 1 year. My method gives slightly better results in this test, but it's more of a philosophical difference for me (who trades without using all available data?). The only parameter in this system, is the length of the moving-averages. 25 seems to work best for EURUSD, but your system should be able discover the best one for the PAIR you are trading. I let the system choose an MA length between 5 and 100.

Here is the EURUSD, it has done well, but in 2013 it suffered:



The USDINR (USD vs Indian Rupee) has a better shape:



Silver vs Euro is a little choppy, but does well:



And the best by far (IMHO), is the USD vs Russian Ruble:



This is what a CROSS_OVER looks like:



The system has a lot of churning, and could probably benefit from some tweaking. I thought I would just throw it out there as an example of using OPEN/CLOSE moving-averages. I originally started looking at them for intraday swing-trading, but could never get them to work very well, so I tried them on EOD trading, and they looked okay.

The system has only 1 variable, the SMA length. You could put stops, take-profits, time-outs, reentry-delays, etc, but the system slowly starts to curve-fit the data as you tweak their parameters.

 

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