EOD trend following system

jpwone

Well-known member
254 3
Now before I get eaten alive I have to stress I have no idea how this performs in a sideways market.

The basic premise is to work with the trend for trade entry and to have a clearly defined stoploss criteria.

The attached image illustrates the idea.

A daily chart chart is used and it is the end of day values which are key. The chart has a 34 EMA and a 55 EMA.

If the 34 is above the 55 we are looking for long entries.
If the 34 is below the 55 we are looking for short entries.

If there is little divergence between the EMA's (they are very close to each other) then do not use the system until the dominant trend is clearly identified.

Always wait for a pullback into the zone between the EMA's.

Go long when the 34 EMA is above the 55 EMA and the candle completes the day above the 34 EMA. If the previous down candles had penetrated the 55 EMA then a long entry can be considered at a close above the 55 EMA.

Go short when the 34 EMA is below the 55 EMA and the candle completes the day below the 34 EMA. If the previous up candles had penetrated the 55 EMA then a short entry can be considered at a close below the 55 EMA.

Initial stops are at the 34 EMA (or 55 EMA if used for initial entry).

For the chart shown lets look at the marked points.

Point A
Pretty straightforward. The 34 EMA is above the 55 EMA so looking to go long. The down move had penetrated both the 34 and 55 so we could enter on the first close above the 55. If we had taken this entry we would have been stopped out when the actual crossed back through the 55. The following day it completed above the 34. We now go long with a stop at the 34 EMA level. Run the trade with a trailing stop as usual.

Point B
Again straightforward. The 34 EMA is above the 55 EMA so looking to go long. The down move had penetrated the 34 EMA and so we would enter on the first close above the 34. The day following entry we would have stopped out on the intraday move back below the 34 EMA. The following day it completed above the 34. We now go long with a stop at the 34 EMA level. Run the trade with a trailing stop as usual.

Point C
A little messy but it still holds together. The 34 EMA is above the 55 EMA so looking to go long. The down move had penetrated the 34 EMA and so we would enter on the first close above the 34 EMA. It does not close above the 34 but continues down through the 55 EMA. It then completes above the 34 EMA and triggers our long entry. We now go long with a stop at the 34 EMA level. Run the trade with a trailing stop as usual.

I have used the Dow to illustrate this but it seems to work across a wide range of instruments. Those trading Forex might find it interesting as Forex does seem to have lengthy trending periods.

Comments and criticism welcomed.

PS. if you make money using it then there will of course be a backdated fee of champagne for life for yourself.
 

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JonnyT

Senior member
2,560 22
You are of course only looking at a very small sample with a very good trending market.

Life isn't like that for long.

Try it on the FTSE...

JonnyT
 

jpwone

Well-known member
254 3
Hi JT

I knew I should have used a different data sample :)

The sample I used was chosen to illustrate the method rather than the performance.

I think that you would have to selectively apply this technique ie. use it as a lower risk entry method in an established trend rather than apply it as a mechanical method.

The FTSE did quite well with it in the past 12 months from a quick look at a chart or have I missed something?
 

oatman

Senior member
2,879 22
Trend is the key. I've looked at 21 and 55 Weighted MAs on a straight crossover. If you use a 1 or 2 period delay for confirmation you filter some whips out. These crossovers will keep you in "forever" in a trend. You can of course use a 3rd average (say 89) as well and wait for them all to cross. :cheesy:
All these things work some of the time.
Good luck
 

quint

Member
57 0
JP
All of the trades highlighted on the sample match exactly the trades triggered by Marc Rivallands modified Gann Swing Charts.
 

Splurge

Member
88 3
I have always found systems based on MAs are very simple to operate but difficult to make work. I personally have yet to find on which consistently works in all types of market - trending,ranging, tanking and ballistic mode.

If you guys are looking for a simple fire and forget system you could always try the old 30/34 setups which have been mentioned in the past.

They seem to provide more profits than losses.

http://www.e-minitraders.com/phpBB/viewforum.php?f=6

you may need to register to get to the link but its free
 
 
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