Can a simple trading system work?

Discussion in 'Trading' started by runningman, Dec 19, 2007.

  1. Many of the systems people post here seem very complicated, with filters, indicators, etc. My question is - can a simple system of, say a 5/50 MA crossover, buy when the 5 crosses the 50 going up, sell when the 5 crosses the 50 going down, on a 5 min chart- work? Is money management the key?
  2. darren


    I beleive so, I usually do a 5/20 crossover on an 89 tic use proper money management and u dont have to take every trade use some other indicators to know when to stay in or out or if there is a trend go full size in that direction and smaller size if agaist the trend. but simplicity is the key as I am just learning that. Also know important levels like pivots etc
  3. Money management is one of the the key elements . Simple systems like 50/5 MA will not work because they miss another elements like cycle analysis, reversion to mean and , to some degree ,trend analysis. All of it in different time frames.
    Many consider that to be the simple approach.
  4. ajna


    Simple ideas can work, but some discretion in which trades to avoid and bet size variation make all the difference. For example, your moving average example can work on many time frames and in many different economic cycles. But drawdowns can be large if you don't use some discretion.
  5. Simple ideas work, but a moving average crossover wouldn't be the place I'd be looking.
  6. I'd argue that most traders usually start simple, then add complexity in order to try to "hone their edge", only to start stripping their methods back down in order to simplify. How ironic that in order to gain simplicity many must first overcome complexity.

    Many find or at least state that MA crosses are dubious indicators and questionable as they may trigger false/weak moves, but many don't ever really explain why they believe this to be the case.

    There was an extensive thread a while ago in I believe it was the futures trading forum and MA crosses were the basis for the system. One of the basic issues most there encountered was missing the move (as in by the time the cross occured and any verifying criteria were satisfied minimal profits, if any were realized) or taking too many false moves. Simply put, the chop ate them alive. Many will tell you crosses are bogus or don't work, but many cannot tell you why they will not work solely on their own (as is the case in most TA ridicule).

    What I will say to you is simplicity in itself as an explanation. MA crosses reveal what HAS happened, as does all TA. As of today, I don't think there is anyone/thing that can tell the future. What may be the case though is that MA crosses are a good place from which to start a journey of understanding. You will find that MA crosses do in fact reveal something about the price action that has occurred, but to simply use MA crosses as the SOLE indicator for trading, as many others here have already stated, is pretty poor.

    Good Luck!
  7. jjrvat


    Simple ideas work as long as you dont forget price analysis !!!



  8. Good post.

    What works in the end is simple in many ways. But doesn't necessarily seem simple to a newbie. MAs are a good indication of trend. They are also a good place to look for pullbacks. MA crosses are something I tested about 8 years ago.

    Learn to use MAs and how to read support and resistance. Then add price action to trigger your trades and you'll do fine.

    John Hill's book (which I just reviewed) gives you a huge number of options. John Carter's book also seems good (I'm a couple of chapters into it for Xmas reading).
  9. Yes. I think that would work, with MM worked out.....

    I don't know about 5-50, as the chart above illustrates, could make you miss out because of the large amount of difference in the time periods.....but you may could try some different numbers....

    I wouldn't use MA's as a strict entry/exit system, but if you were to say use it to gauge short, medium, long term momentum....then at that point, you could have a very good method.......

    Again, money management and a business-like approach is key.

    P.S. What time frame would you be looking at trading?
  10. asap


    no way.

    just forget about it.

    no system might turn a profit based on a fixed set of parameters because the market is always changing.

    when i started developing my trading bots, a couple of years ago, i used massive loads of hi-frequency data to simulate and optimize my algos in several liquid future contracts, mainly the dax and the es. at that time, my conclusions pointed towards the rate of dynamic change in these contracts were so hi, that, a highly specialized and optimized setup would have no chances of surviving after 30 minutes. in the last few years, these conditions have become even more extreme.
    #10     Dec 19, 2007