Low Whipsaw Moving Average Crossover Position/Swing/Day Trading System

smartcat

Active Member
#1
Gentlemen,

After fooling around with Metastock, I've come up with a moving average crossover system that generates 50 to 80% lower whipsaws. I have been using this system for the past 7 months with excellent results (the big move in the stock markets this year might have something to do with it though :cool: ). The system seems to work well during back testing too.

This system uses 4 moving averages and nothing else. And it can be used not just for stocks but also for commodities & currencies. The system can be implemented with a few variations for day trading (intraday), swing trading ( 3 days to 15 days) or position trading (3 days to 3 months or more).

Based on back testing for various securities, you can expect roughly around 15 to 20% per year on turnover. That is, 1 Lot Nifty = approx 4 Lacs value = Rs. 60K to 80K profit per year (excluding brokerage).

Will explain in detail over the next few days. This is how moving averages are plotted on the chart -


post images
 

smartcat

Active Member
#2
POSITION TRADING:

Chart Setup:

1) Open the EOD Candlestick chart. I prefer Candlesticks because it gives clarity to the graph when we have 4 moving averages.

2) Paint the graph blue (both up and down movements)

3) Add 4 moving averages to the graph -

a) 21 EMA High (Red Colour)
b) 21 EMA Low (Red Colour)
c) 3 EMA High (Green Colour)
d) 3 EMA Low (Green Colour)

That's it. This is how our chart looks. I have taken a screenshot of Nifty chart between 2012 and 2013.


uploading images

Rules Of The Trading System:

This is an "Always On" trading system in the sense that you are either LONG or SHORT. You are never out of a trade.

1) Buy when BOTH 3 EMA High & 3 EMA Low lines (Green Lines) are above BOTH 21 EMA High & 21 EMA Low lines (Red lines).

2) Hold The long Trade.

3) Exit and go short only when both 21 EMA High & 21 EMA Low lines (Red lines) are above both 3 EMA High & 3 EMA Low lines (Green Lines)

4) Hold the short trade

5) Go back to step 1 if the crossover condition is fulfilled.

Basically, you go LONG when both green lines are above both red lines and go short when both red lines are above both green lines.

Taking the above Nifty graph as an example -

1) On 8th Aug 2012 EOD, you would've noticed that both green lines (3 EMA high/low) are above both red lines (21 EMA high/low). That's a signal to go long.

2) Next day (9th Aug), you buy Nifty as soon as the market opens (let's assume you manage to buy 1 Lot Nifty at 5365

3) Markets go up to 5463 on 23rd but fall all the way to 5261 on 6th Sept.

4) You still hold on to the trade. Why? Inspite of the fall from 5463 to 5261, the condition to exit the position and go short (both green lines falling below both red lines) has not been fulfilled.

5) You are rewarded for holding your nerve. The markets reverse and go up from 5261.

6) Your signal to exit the position and go short comes only at 5611 on 26th November. You earn almost 240 points (when you actually trade, it will be less than that assuming Nifty futures is trading at a premium to Nifty spot).

7) Notice how you avoided trading between Oct 8th to Nov 12th, eventhough markets were flat. No whipsaws!

This setting 3/21 EMA High/Low reduces whipsaws by around 50%, and not eliminate it completely. Selecting 3/21 EMA gets you in and out of major trends quickly. However, if you want to further reduce whipsaws, you can try fiddling around with EMAs.

Try 4/18 EMA high/low moving averages. Or
Try 5/15 EMA high/low moving averages

Note that the above might reduce whipsaws further, but it hurts by getting you in and out of major trends very late.

Next, my swing trading system.
 

smartcat

Active Member
#4
hay nice, I was also trying something like this for some time, but did not traded it yet, I was using 5 and 15 ema.
I prefer 5 EMA High/Low & 15 EMA High/Low for day trading. This gives fewer trading signals but needs larger movement from underlying stock that you are trading. For position traders, 5/15 High/Low EMA crossover should only be used for high volatility stocks like JP Associates or Adani Enterprises or perhaps Bank Nifty.

If you use 5/15 EMA High/Low for something like low volatility stocks (or Nifty to some extent), you won't get whipsaws - yes - but you will be in the wrong side of the trade. That is, when you are short on Nifty, it might strart creeping up slowly. When the underlying moves slowly, 5 EMA High/Low won't be able to go above the 15 EMA High/Low.

MY DAY TRADING SETUP:

Everything is same as in position trading, but we use 5 EMA High/Low & 15 EMA High/Low on 1 min daily chart. I'm trading silver intraday - so let me put up the 1 min chart right now.


how to screenshot on windows

Like before, you buy when both Green Lines (5 EMA High/Low) are above both Red Lines (15 EMA High/Low). You close the position and go short when both Red lines (15 EMA High/Low) are above both Green Lines (5 EMA High/Low).

For intraday trading, it is very important to cut brokerage costs. So I prefer using the setting that gives the least number of trading signals.
 

smartcat

Active Member
#5
From the above screen, I got a buy signal at about 3:15 PM when silver was at 44038 and exit/short signal at about 4:00 PM when silver was at 44080 (profit of approximately 40 points, not counting losses in spread). After I went short at 44080, I held onto my position even when silver went to 44124 today since I didn't get a buy signal. I was rewarded later when silver fell down from 44064.
 
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#6
Sir
It is just great. Have just now checked on NFTY, DJI, EURUSD, USDCHF, GBPJPY,CRUDE..
I feel you should rename the title as "NO WHIPSAW Moving Average Crossover Position/Swing/Day Trading System "

Hats off to your study.:thumb::clap::clapping::thanx::yahoo:

Ajit Chand Bhandari
 

Abhi1284

Active Member
#7
_SECTION_BEGIN("Price");
SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", O, H, L, C, SelectedValue( ROC( C, 1 ) ) ));
Plot( C, "Close", ParamColor("Color", colorDefault ), styleNoTitle | ParamStyle("Style") | GetPriceStyle() );
_SECTION_END();

A21=EMA(H,21);
B21=EMA(L,21);
Plot(a21,"",colorRed,styleLine);
Plot(B21,"50ma",colorRed,styleLine);
A3=EMA(H,3);
B3=EMA(L,3);
Plot(a3,"",colorGreen,styleLine);
Plot(B3,"",colorGreen,styleLine);

Buy=Cross(B3,A21);
Sell=Cross(B21,A3);

Buy= ExRem(Buy,Sell);
Sell=ExRem(Sell,Buy);

PlotShapes(IIf(Buy==1, shapeUpArrow , shapeNone), colorGreen, 0,Low, Offset=-20);
PlotShapes(IIf(Sell==1, shapeDownArrow, shapeNone), colorRed, 0,High, Offset=-30);


I TRY TO WRITE AFL AS ABOVE STRATEGY
KINDLY CHECK

ABHISHEK
 
#8
Sir
It is just great. Have just now checked on NFTY, DJI, EURUSD, USDCHF, GBPJPY,CRUDE..
I feel you should rename the title as "NO WHIPSAW Moving Average Crossover Position/Swing/Day Trading System "

Hats off to your study.:thumb::clap::clapping::thanx::yahoo:

Ajit Chand Bhandari
Hi,

On which timeframe you are checking crude.
 
#9
Sir
It is just great. Have just now checked on NFTY, DJI, EURUSD, USDCHF, GBPJPY,CRUDE..
I feel you should rename the title as "NO WHIPSAW Moving Average Crossover Position/Swing/Day Trading System "

Hats off to your study.:thumb::clap::clapping::thanx::yahoo:

Ajit Chand Bhandari
Hii Aandam ,

Which time frame you use for nifty,bank nifty &crude.

What is your success ratio?

Thanks
Light2001
 

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