Discussion in 'Strategy Development' started by aus_SPIder, Sep 4, 2006.

  1. Ever since ive been trading (3yrs ago) ive always wanted the answer to this question but would never spare the capital to pursue it. Its an complete N00000000000000b question however ive always been curiousl Just wondering if anyone here has atempted or tried it.

    Here it is:

    Assume you have sufficient capital, a good risk management system, a decently trending market and good liquidity.

    Would this system work?
    Buy when price moves one tick above 12 day simple MA

    Sell when price moves one tick below 12 day simple MA.

    A new entry signal = the exit for the old signal.

    Would it be profitable?
  2. Try it on a free demo account and see what happens. No money needed to open a demo paper trading account. Check out strategy runner website for a free 14 demo.
  3. why other to paper trade, and just use old data and a simulator instead
  4. SarahG


    Good idea. Can you suggest a free similator?
  5. okyou wouldn't even need a simulator, just go to any site with stock charts and put the sma in, and check whether it would work.. it would probably work in trending markets, and completely wash you out in non-trending markets.. if trading were to be this simple.. :p
  6. AaronCapps

    AaronCapps Global Futures

    what markets.

    This idea would only work on highly volatile markets like Crude and gbpusd. The real problem is that it is usually in the area of 30-35% accurate due to all the whip saws of the market going back and forth.

    I applied your idea to daily charts of multiple futures and forex contracts to arrive at this conclusion. Feel free to contact me at for a sample of some of the reports generated by tradestation.

    In my opinion, these type of strategies are extremely hard to follow for most retail clients because they lack the patience, money management, risk capital and discipline to stick with a method that is wrong so often waiting, for the 1 trade a quarter or year that makes back all the losses.
  7. waxwing


    Based on my own backtesting efforts, I would concur more or less 100% with Aaron's post above.

    Strategies of this type do indeed seem to profit over periods of 1 year or more, but their equity curves are not the kind of thing most people would be prepared to stomach. Sharpe ratios less than 1, low win ratios .. it's the contrast between absolutely rigorous discipline to trade the system correctly every day and the very long term nature of the edge that makes it unpalatable. And it's exactly this unpalatability, I would hypothesise, that allows the edge to persist.

    Automated + diversified across many markets, it could be feasible, but on that I have no information.

    I also agree that the best forex pair (from the majors) seems to be Cable, but the general principle of more volatility = better seems to be the point there.
  8. The problem is the number of times the average will be crossed and induce commissions and slippage. Like for most systems, the less noise the better.
  9. hey waxwing and aaroncapps i reckon ive got a really profitable idea that can make us all millionaires!

    1) lets all go and write a trend following book and call it "trend following for idiots"

    2)lets all program a software called "trend following for idiots" that generates signals for the retail customer

    3)Lets market it to all the newbie want to get rich quick traders and describe the system as:

    "a truly profitable backtested trading system that relies on an exponentially smoothed time series moving average to generate profitable trading signals in volatile markets"

    and the magical code behind the system?

    IF price = 12 day MA + 1 then Buy
    IF Price = 12 day MA -1 then Sell


    u know that might end up being one of the more profitable retail trading systems around

    but thank you uve just proven something that ive doubted for quite a long time: It is profitable over the long term to trade 1 indicator only.
  10. Assume the moving average value is 50.00. Price rises to 50.01 and you buy. The spread might be 0.10 or 0.20, below your intended exit price of 49.99.

    If you modify the rule, say "Buy when price moves one tick above 1.05 times the value of the 12 day simple MA" the system might not show the spread problem.
    #10     Sep 6, 2006