Forex Blog Using a simple cross to make trades
| Using a simple cross to make trades |
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| Friday, 06 February 2009 03:02 | |||||||||
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Using a simple cross can be profitable if you optimize the system to take into account certain characteristics of a currency pair. Knowing what these characteristics are can be tricky. But learning them can be done and every trader should try and get a handle on at least one pair. Then take the same knowledge to another pair.
In this example I am going to use the EUR/USD to illustrate a point. I wrote a script that simply uses a 5 EMA cross with a 20 EMA cross to act as the trigger for entering a trade. This is one of the simplest and scripts and easiest methods of trade to understand. The script looks like this. if CrossUp (EMA[0](Close, 5),EMA[0](Close, 20)) then addbuyentry endif if CrossDown (EMA[0](Close, 5),EMA[0](Close, 20)) then addsellentry endif The results though are not promising at all. This loss does not even take into account spread. On the EUR/USD you can expect between 2 and 3.5 points, making the loss around 2755 points on the high end.
One of the most important aspects of successful trading is trade with the trend. This can be accomplished by putting filter in the script that filters for this. One of the easiest ways to do this is to simply require the entry point to be below or above a given number of bars in the past. This is how the script looks that I tested with this system.
if CrossUp (EMA[0](Close, 5),EMA[0](Close, 20)) and Close[0] > Close[80] then addbuyentry endif if CrossDown (EMA[0](Close, 5),EMA[0](Close, 20)) and Close[0] < Close[80] then addsellentry endif The results that are now generated are better, because you are now only taking a cross knowing that current prices are above or below where they were 80 bars ago. This was tested on a 5 minute chart. After deducting 3.5 points for spread on 60 trades, you are left with a respectable 487 points in profit from Jan 1 2008 to Feb 5, 2008.
I am sure this could be optimized even further when looking for stops, and exit points. Keep in mind that so far this is a simple stop and reverse system. Now let’s take a look at a time frame of data outside the development zone. In the next time frame I tested March6, 2008 to April 8, 2008. Though the overall profitability dropped by a little over 50%, they system still traded within the ranges we expected from previous tests. Similarities such as Winning ration, number of trades and Profit/Loss ratios held steady.
Analysis like this will help you trade more profitably, consistently and give you a better understanding of why your system is or isn’t working.
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| Last Updated on Friday, 06 February 2009 03:49 |
