Your thoughts on EMA 5, EMA 10 crossover as an entry trigger

[Nadine Cathleen]

EMA 5 and EMA 10 crossover plus RSI and Stochastics.
on daily chart and 4h chart.

Any thoughts on that? Anyone having a longer experience with that?

Thanks

 

[dbphoenix]

A fundamental misunderstanding of how "indicators" are calculated and what they're supposed to do can lead to all sorts of off-task behavior. We think we see the indicators indicating something, or not, and believe we have made an important discovery. We then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on determining whether or not the indicator is actually indicating what we think it's indicating. In most if not all cases, it isn't.

Consider the virgin being tossed into the volcano: sometimes it results in a great crop, sometimes it doesn't. Maybe tossing her in earlier or later will change the probability of a healthy crop. Maybe two virgins are better than one. Maybe six. Maybe tall virgins are more effective than short ones. And surely age is important. But does the robustness of the crop really have anything to do with tossing the virgin into the volcano in the first place?

The money under the pillow is not evidence of the existence of the tooth fairy, and spring will arrive regardless of whether the virgin is tossed into the volcano or not.

 

[tomorton]

MA crossovers are not just superstition, they do work but only some of the time. The problem is that most crossover signals will turn out to be false but there is no way of knowing that at the time, whether or not you use RSI or stochastics or any other indicator. So, perhaps 65% of the time, the signal will give a loss, and 355 of the time it will give a gain. The shorter the MAs, the more signals you get, but the win rate does not change. The key is to make the losers so small and the winners so large that the net gain outweighs the net loss. It turns out the key s not the bets entry signal but the best exit strategy.

 

[dbphoenix]

MA crossovers are not just superstition, they do work but only some of the time. The problem is that most crossover signals will turn out to be false but there is no way of knowing that at the time, whether or not you use RSI or stochastics or any other indicator. So, perhaps 65% of the time, the signal will give a loss, and 35% of the time it will give a gain. The shorter the MAs, the more signals you get, but the win rate does not change. The key is to make the losers so small and the winners so large that the net gain outweighs the net loss.

Actually the "crossover signal" does exactly what it is supposed to do: signal that price has risen (or fallen, as the case may be). If price doesn't rise/fall, the MAs don't cross. The problem is that the signal, if given, is so late that price can reverse before the signal is given, so that the signal appears to be false. But the MAs can't cross in the first place unless the price movement provides the foundation. IOW, all of this lags. Without some probability of a sustained movement, such as a reversal off a climactic low, the trade becomes little more than a guess. (NB: if one is watching this live, he can often see MAs cross, then uncross due to price deciding it's not going to rise or fall after all, but if one were to view a static chart, he would not see the "never-mind" cross, one reason why so many MAXO fans believe that MAXOs are more robust than they really are.)

It turns out the key is not the best entry signal but the best exit strategy.

This is the same argument that is advanced for making random entries. However, unless has a robust entry strategy, he will have so many small losses from his poor entries, even with the best exit strategy, that he will eventually go broke anyway. There are a great many scalpers who could testify to this, if they were still around.

 

[doodboy]

Totally newbie strategy will hurt your account. Most curves u see on your charts are adjusted as time goes by. So by time market settles it appears crosses worked..dont be fooled by hind-sight.

 

[forker]

Totally newbie strategy will hurt your account. Most curves u see on your charts are adjusted as time goes by. So by time market settles it appears crosses worked..dont be fooled by hind-sight.

A crossover system should never be used this way. Wait for the cross and the look at pullbacks or other ways to get in.

 

[Hoggums]

What about exits, stops and take profit levels. This isn't even 1/3 of a strategy you are discussing here.

 

[barjon]

MA crossovers are not just superstition, they do work but only some of the time. The problem is that most crossover signals will turn out to be false but there is no way of knowing that at the time, whether or not you use RSI or stochastics or any other indicator. So, perhaps 65% of the time, the signal will give a loss, and 355 of the time it will give a gain. The shorter the MAs, the more signals you get, but the win rate does not change. The key is to make the losers so small and the winners so large that the net gain outweighs the net loss. It turns out the key s not the bets entry signal but the best exit strategy.

Almost everything works some of the time, Tomo . Some, like db's line of least resistance or amt, fairly frequently and others far less so. Get a rough idea of the frequency so far as any particular strategy is concerned and then rely on money/trade management to bring home the bacon.

 

[tomorton]

Wise words jon, and as you once said to me if you use random exits you get random results. This can only be magnified by random entries as well.

Nadine Cathleen, a MA crossover pattern is only the first brick off the ground when you're building a strategy.

 

[metrader]

EMA 5 and EMA 10 crossover plus RSI and Stochastics.
on daily chart and 4h chart.

Any thoughts on that? Anyone having a longer experience with that?

Thanks

I've tried a similar strategy on shorter time frames and was not very successful.

I've attached eurusd daily chart - it looks to me as if it's better to do the opposite. Must admit it's not the best choice - it's a ranging market (eurusd) and crosses are more for trending markets but still not good because of late entries imo. Also I'm not so sure about using RSI and Stoch together - I think they're similar and it would be simpler to use only one of them (if you manage to find a market where crosses work)