Moving average stock trading system

Triple Moving Average Trading System.

The Triple Moving Average trading system (rules and explanations further below) is a classic trend following system. As such, we included it in our State of Trend Following report, which aims to establish a benchmark to track the generic performance of trend following as a trading strategy.

The Wisdom State of Trend Following reports the performance of a composite index made up of classic trend following systems (Triple Moving Average and others) simulated over multiple timeframes and a portfolio of futures, selected from the range of 300+ futures markets over 30+ exchanges that Wisdom Trading can provide clients access to. The portfolio is global, diversified and balanced over the main sectors.

We publish updates to the report every month, including that of the Triple Moving Average trading system.

Subscribing is the best way to keep track and follow the performance of trend following on a regular basis.

Subscribe, make sure you do not miss our State of Trend Following report updates.

Receive free updates every month Trend following performance in a nutshell Objective trend following benchmark Useful stats and analyses Full historical report for new subscribers One of the most common trading strategy amongst professional futures traders.

Triple Moving Average System Explained.

The Triple Moving Average Trading system uses three moving averages, one short, one medium, and one long. The Triple Moving Average Trading system trades long when the short moving average is higher than the medium moving average and the medium moving average is higher than the long moving average. When the short moving average is back below the medium moving average, the system exits. The reverse is true for short trades.

For this reason, unlike the Dual Moving Average trading system, this system is not always in the market. The system is out of the market when the relationship between the short MA and medium MA does not match the relationship between the medium MA and long MA.

For example, considering Long trades, if the short MA is over the medium MA but the medium MA is under the long MA, the system is out of the market. Likewise if the medium MA is over the long MA but the short MA is not over the medium MA the system is out of the market.

This means that the Triple Moving Average system can initiate trades due to either:

· Short MA is above the medium MA for Long entries or to below for Short entries. This is the most common case.

· Medium MA is above the long MA where the short MA is already over the medium MA for Long entries, or to below the long MA where the short MA is already under the medium MA for Short entries . This will happen when the market has been descending or ascending for a long time and then reverses direction. It takes longer for the medium MA to move to the other side of the long MA since they are both slower moving averages than the short MA.

The Triple Moving Average trading system optionally uses a stop based on Average True Range (ATR). If the ATR stop is not used, the system uses the value of the long moving average as the stop for the purpose of position sizing.

In the event of a stop out, the system will reenter whenever the above conditions are true, even if this is the following day’s open.

The Triple Moving Average trading system includes seven parameters that affect the entries:

The number of days in the long moving average.

The number of days in the medium moving average.

The number of days in the short moving average.

If set to TRUE then the system will enter a stop based on a certain number of ATR from the entry point.

The number of days used for the ATR calculation. This parameter is visible and active only if Use ATR Stops is TRUE.

The stop width expressed in terms of ATR. This parameter is visible and active only if Use ATR Stops is TRUE.

If the Use ATR Stops is FALSE the trading system computes a stop at the price of the long moving average for the purposes of position sizing. In this case, the stop is active only for the first day.

If set to True, Trading Blox won’t take a trade unless the close is also on the right side of the short moving average. For example, with this parameter set to True, in addition to the short moving average being over the medium moving average and the medium moving average being over the long moving average, the close must be above the short moving average in order to trigger a Long position entry.

Alternative Systems.

In addition to the public trading systems, we offer to our clients several proprietary trading systems, with strategies ranging from long-term trend following to short-term mean-reversion. We also provide full execution services for a fully automated strategy trading solution.

Please click on the picture below to see our trading systems performance.

CFTC-required risk disclosure for hypothetical results.

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Wisdom Trading is an NFA-registered Introducing Broker.

We offer Global commodity brokerage services, managed futures consultation, direct access trading, and trading system execution services to individuals, corporations and industry professionals.

As an Independent introducing broker we maintain clearing relationships with several major Futures Commission Merchants around the globe. Multiple clearing relationships allow us to offer our clients a wide range of services and exceptionally wide range of markets.

Our clearing relationships provide clients with 24hr access to futures, commodities, and foreign exchange markets around the globe.

Futures trading involves a substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results.

How To Use The 10-Day Moving Average To Maximize Your Trading Profits.

Swing traders rely on a diverse arsenal of technical indicators when analyzing stocks, and there are literally hundreds of indicators to choose from. But how is a new trader supposed to know which indicators are most reliable? Deciding which technical indicators to use can frankly be a bit overwhelming, but it doesn’t have to be (nor should it be).

While learning to master our winning system for swing trading stocks and ETFs in the early years, we tested a plethora of technical indicators. Our conclusion was that most of the technical indicators served their intended purpose of increasing the odds of a profitable stock trade. However, we quickly discovered that using too many indicators only led to analysis paralysis. As such, we now avoid this problem by simply focusing on the tried and true basics of technical trading: price, volume, and support/resistance levels.

One of the easiest and most effective ways to find support and resistance levels is through the use of moving averages .� Moving averages play a very big role in our daily stock analysis, and we rely heavily on certain moving averages to locate low-risk entry and exit points for the stocks and ETFs we swing trade.

For gauging price momentum in the very short-term (a period of several days), we have found the 5 and 10-day moving averages work very well. If, for example, a stock or ETF is trading above its 5-day MA, there is usually no good reason to sell. One possible exception is if the stock or ETF has made a 25-30% price advance within just a few days.

The 10-day MA is a great moving average for helping us ride the trend with a bit more “wiggle room” than provided by the ultra short-term 5-day MA.

For trend traders, no stocks or ETFs should be sold while they are still trading above their 10-day moving averages following a strong breakout. To understand why, compare the following daily charts of U. S. Oil Fund ($USO) and First Trust DJ Internet Index Fund ($FDN). First is $FDN:

With the exception of a brief “shakeout” of just two days (a common and acceptable occurrence), notice that $FDN has been holding above its rising 10-day MA ever since breaking out in early July. This is a clear sign that the momentum from the breakout is still strong.

On the other hand, notice the difference on the daily chart of $USO:

As you can see, $USO has failed to hold above its 10-day MA over the past week, which is a sign that bullish momentum from the recent breakout is fading. As such, we sold 25% of our existing position on July 25. It never hurts to lock in profits on partial share size when a breakout stock or ETF has broken below its 10-day moving average because such price action frequently leads to a deeper correction.

Immediately after selling partial share size on the break of the 10-day MA, we were prepared to buy back those shares if� the price action immediately snapped back higher within one to two days (as $FDN did). However, since that did not occur, we canceled our buy stop and continue to hold $USO with reduced share size and a small unrealized gain since the breakout entry.

While the 5 and 10-day moving averages are by no means a complete and perfect system for exiting a position, they allow us to stay with the trend in a winning trade (which helps us to maximize our trading profits). More importantly, using the 10-day moving average as a short-term indicator of support enables us to TRADE WHAT WE SEE, NOT WHAT WE THINK!

To learn our complete and winning stock trading system, check out our top-ranked Swing Trading Success Video Course. We guarantee you won’t be disappointed!

Enjoy? Check out these related articles:

6 Comments.

This is a good informative article, not just on oil but using technical analysis to your advantage. I like to use the 9 and 13 MAs. They move similar to MACD lines, and big moves occur before and after they cross each other.

Thanks for your feedback. Always interesting for traders to share their favorite indicators.

Hi Deron great strategies. Is that a Monte Cristo? Cuba will be a great investment strategy.

Ha ha! Very observant, but it’s actually a Nicaraguan cigar named Perdomo.

Cubans used to be excellent, but the quality has been downhill in recent years.

I am trader, mainly day trading those days, because of the market instability. I have an online broker who provides quite an arsenal of indicators but no alert system. This makes my situation very comparable to that of a soldier in the battle-field, well armed nut with no communications.

I developed my own trading strategy, which is rather simple. It uses the full stochastic and and three moving averages (2 WMA and 1 SMA). I also have a pool of about a dozen stocks. I however have no way to keep an eye on them to see which one has presented the opportunity to buy or short it, and I am often jumping from one stock to another, only to see the opportunities I have missed.

I therefore would like to ask you if you can provide me with a scanner that, once my strategy (parameters of the moving averages and stochastic) is defined, I simply have to run it at any time of the day to fined if any stock has met the defined preliminary trading conditions.

In the case you do, can I also try it for few days (a week or so) before becoming a member. Should it work for me, I do not mind paying for the trial period together with my membership.

Thank you very much for your time and efforts.

The Morpheus scanning service is NOT customizable in the way you mention, as it is hard coded to use our custom formulas to quickly and easily find the best stock charts. However, you may want to check out TC2000 at worden because it is very customizable and we use it all the time (no affiliation with the company).

Leave your comment below! Cancel Reply.

Top 20 Most Popular Posts - Read More!

Latest Tweets.

Follow Us Around The Web:

Most Recent Posts.

© 2002-2017, Morpheus Trading, LLC.

Reproduction without written permission is strictly forbidden.

Arthur Hill On Moving Average Crossovers.

A popular use for moving averages is to develop simple trading systems based on moving average crossovers. A trading system using two moving averages would give a buy signal when the shorter (faster) moving average advances above the longer (slower) moving average. A sell signal would be given when the shorter moving average crosses below the longer moving average. The speed of the systems and the number of signals generated will depend on the length of the moving averages. Shorter moving average systems will be faster, generate more signals and be nimble for early entry. However, they will also generate more false signals than systems with longer moving averages.

For Inter-Tel (INTL), a 30/100 exponential moving average crossover was used to generate signals. When the 30-day EMA moves above the 100-day EMA, a buy signal is in force. When the 30-day EMA declines below the 100-day EMA, a sell signal is in force. A plot of the 30/100 differential is shown below the price chart by using the Percentage Price Oscillator (PPO) set to (30,100,1). When the differential is positive, the 30-day EMA is greater than the 100-day EMA. When it is negative, the 30-day EMA is less than the 100-day EMA.

As with all trend-following systems, the signals work well when the stock develops a strong trend, but are ineffective when the stock is in a trading range. Some good entry points for long positions were caught in Sept-97, Mar-98, and Jul-99. However, an exit strategy based on the moving average crossover would have given back some of those profits. All in all, though, the system would have been profitable for the time period shown.

In the example for 3Com (COMS), a 20/60 EMA crossover system was used to generate buy and sell signals. The plot below the price is the 20/60 EMA differential, which is shown as a percent and displayed using the Percentage Price Oscillator (PPO) set at (20,60,1). The thin blue lines just above and below zero (the centerline) represent the buy and sell trigger points. Using zero as the crossover point for the buy and sell signals generated too many false signals. Therefore, the buy signal was set just above the zero line (at +2%) and the sell signal was set just below the zero line (at -2%). When the 20-day EMA is more than 2% above the 60-day EMA, a buy signal is in force. When the 20-day EMA is more than 2% below the 60-day EMA, a sell signal is in force.

There were a few good signals, but also a number of whipsaws. Although much would depend on the exact entry and exit points, I believe that a profit could have been made using this system, but not a large profit and probably not enough to justify the risk. The stock failed to hold a trend and tight stop-losses would have been required to lock in profits. A trailing stop or use of the parabolic SAR might have helped lock in profits.

Moving average crossover systems can be effective, but should be used in conjunction with other aspects of technical analysis (patterns, candlesticks, momentum, volume, and so on). While it is easy to find a system that worked well in the past, there is no guarantee that it will work in the future.

Moving Average Bounce.

The moving average bounce trading system uses a short term timeframe and a single exponential moving average and trades the price moving away from, reversing, and then bouncing off of the moving average.

Moving averages smooth the price, so that short term fluctuations are removed, and the overall direction is shown. When the price experiences a strong move, it will have a tendency to retrace back to the moving average, but then continue the original move, and it is this bounce that is used by the moving average bounce trading system.

The default trade uses a 1 to 5 minute OHLC (Open, High, Low, and Close) bar chart, and a 34 bar exponential moving average of the typical price (HLC average). Both the chart timeframe and the exponential moving average length can be adjusted to suit different markets. The default trading time is when the market is most active, such as the European open which happens at 8:00 AM Central European Time or the US open which happens at 9:30 AM Eastern Time, or at 3:30 PM Central European Time.

The following tutorial steps use the EUR futures market, but exactly the same steps should be used in whichever markets you are trading with this trade. The trade used in the tutorial is a long trade, using 1 contract, with a target of 10 ticks, and a stop loss of 5 ticks.

Continue to 2 of 9 below.

Open a 1 minute OHLC (Open, High, Low, and Close) bar chart of your market.

Continue to 3 of 9 below.

Add a 34 bar exponential moving average of the HLC typical price (calculated as (High + Low + Close) / 3), which is also known as the HLC average.

Watch the market, and wait until the price has moved away from the moving average. There is no default distance the price should move, but the price bars should no longer be touching the moving average. For the EUR the recommendation is approximately 10 ticks.

Continue to 5 of 9 below.

Ready to start building wealth? Sign up today to learn how to save for an early retirement, tackle your debt, and grow your net worth.

Wait for the price to reverse, and move back towards the moving average.

Wait for the price to touch the moving average, which happens when the price trades at the current moving average price.

For a long trade, the previous price bars should have been making lower lows as the price approached the moving average, and for a short trade, the previous price bars should have been making higher highs as the price approached the moving average. There is no specific number of bars that need to make consecutive lower lows or higher highs, but I recommend at least 3 bars.

In the chart shown below, the price touches the moving average on the fourth bar to make a consecutive lower low.

Continue to 7 of 9 below.

Enter your trade when the high (or low) of the first price bar that fails to make a new low (or high) is broken. The following list shows the steps required for both long and short entries :

Price bars make lower lows Price bar touches the moving average Subsequent price bar fails to make a new low Subsequent price bar breaks the high of the previous price bar.

Price bars make higher highs Price bar touches the moving average Subsequent price bar fails to make a new high Subsequent price bar breaks the low of the previous price bar.

In the trade shown in the chart below, the bar that failed to make a new low is shown in white, and the entry is shown by the arrow. The entry is at 1.2995, with a target of 1.3005, and a stop loss of 1.2990.

There is no default order type for the moving average bounce trade entry, but for the EUR the recommendation is a limit order.

As soon as your entry order has been filled, make sure that your trading software has placed your target and stop loss orders, or place them manually if necessary. There is no default order type for either the target or stop loss, but for the EUR (and usually for all markets), the recommendation is a limit order for the target and a stop order for the stop loss.

Wait for the price to trade at your target or at your stop loss, and for either your target or stop loss order to get filled. The moving average bounce trade can take anywhere from a few minutes to a couple of hours to reach your target or stop loss, and the trade does not use any target or stop loss adjustments (except moving the stop loss to break even at a suitable time).

The targets that are shown on the chart are at 1.3005 (10 ticks), 1.3015 (20 ticks), and 1.3025 (30 ticks), all of which were filled by this trade.

If your target order has been filled, then your trade has been a winning trade. If your stop loss order has been filled, then your trade has been a losing trade.

Continue to 9 of 9 below.

Repeat the trade from step 4, as many times as necessary, until either your daily profit target is reached, or your market is no longer active.