Using indicators to develop trading strategies. Chapter two

    Using indicators to develop trading strategies. Chapter two

    Greetings,everybody.

    After reading this post you will understand how to develop trend strategies based on moving averages, what are the pros and cons in trading with

    moving averages.

    The post deals with three strategies based on SMA:

    1) Strategy on two moving averages.

    2) Strategy on one moving average.

    3) A strategy on a modified moving average.


    First strategy.

    Entering position,turning from long to short and vice versa at crossover of SMA lines. If SMA with shorter period crossed SMA with longer period from

    top to bottom, then at closed bar close long position and open short position after closing the bar.

    Positive trend periods are marked in green, and periods not particularly favorable for the system are marked in red.

    Equity of this strategy.

    Advantages:

    1) Strategy allows you to catch the whole trend and successfully get out of it if there is a slight consolidation after a long movement.

    Weaknesses:

    1) In narrowing sidewall, the lines will start crossing more often, which will increase the number of losing trades.

    2) In case of a sharp exit and a long candle, entry delayed.


    Second strategy.

    Let's consider an example using one SMA.

    Entering position,turning from long to short and vice versa at closing bar above/below SMA lines. If bar closed above SMA line, then close position

    of shorts and open position of long. If bar has closed below SMA line, then close long and open short position.

    Equity of this strategy.

    Advantages:

    1) Strategy allows you to catch the whole trend and successfully get out of it if there is a slight consolidation after a long movement.

    Weaknesses:

    1) Many losing trades appear in the sideways movement. If closing of bars is close to SMA line and close is lower, then above it signals

    generated in long and short positions, which leads to high commission costs.

    2) In case of sharp exit and long candlestick, entry delayed.


    Third strategy.

    The strategy based on a modified SMA. If there is long position, SMA moves only upwards, and if it is short position, it moves only downwards.

    Entering long position performed by pending stop order when price touches modified SMA value and ATR indicator value. Entering shorts performed by

    pending stop order when price of difference between value of modified SMA and value of indicator ATR is touched. That is, price should be broken

    through certain average value and volatility calculated through indicator ATR.

    The dots indicate stop orders. It turned out to be something similar visually to Parabolic SAR, but there is another formula and it acts differently.

    Equity of this strategy.

    Advantages:

    1) Strategy allows you to catch the whole trend.

    2) Strategy allows you to catch sharp impulses without waiting for candle close.

    3) When volatility narrowed, there are no multiple inputs


    Conclusion.

    Based on this post, you will be able to understand how to develop strategies by Moving Averages with its disadvantages and advantages. We also tried

    to neutralize disadvantages of trend strategy in the sideways. I hope it was interesting. Take likes, sign up! Further on it will be even more interesting!

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