We are wondering wether you can help us out :
Every moving average indicator (smoothed, exponential,¦) in a specific time frame always has a bottom or top¦ a certain moment in time.
Traditionally it is recognized by a crossing of slow and fast version.
We expect to recognize earlier the optimum by subtracting the current value minus the value-n where ‘-n is some periods/candles back.
If eg in a downtrend, the current SMA > SMA-2 then SMA-1 is likely to be a recent bottom, and may trigger some event.
Or is there an other way to recognize the optimum ? eg angle of the slope = 0
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All moving average cross over systems are late signals. This is their inherent flaw.
I would suggest an ATR trailing stop for an exit. Were you short on the red arrow and wanted to exit there? If its a moving average cross over system where you take every single cross over signal long and short then you cannot prevent small losses like that. If its not and you really wanted to exit on that red arrow you should use a tight trailing stop above the previous bar’s high.
You could also optimize it to take partial profits after a certain distance is reached like 3R or 3*atr10 from entry take 50% profits and optimize the settings a bit in MT4. With a MA trend following system it is best to not take 100% of profit or use TP because then you will miss the really large trends that make this type of system profitable.
To add: The best type of system like this is actually done with the MACD. Check out a book called “Mechnical Trading Systems” by Richard Weissman. Its out of print but there are still used copies for sale on the internet. He compares every major trend following system.
In the end, for a moving average crossover system, the only way to make it profitable is to take every signal, and ignore the small losses. The big trends will make all the money.
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