Forex Mechanical System Review: Triple SMA Crossover

In case you’re wondering why I’m skipping ahead to the forex mechanical system review, it’s because the Triple SMA Crossover system didn’t generate any valid trade signals for my forward testing.

Anyway, based on the backtest results I posted last week, I guess you have an idea of how the grades might turn out! Here they are:

Profitability: 5/20

First, the good news. The system did end up profitable during the backtesting period, as it generated 2.39% in returns, for a total of 361 pips. The bad news is that most of these gains were a result of a single winning trade, without which the system would’ve wound up with a 2.71% LOSS!

The winning trade was scored during a rare instance when the forex market was exhibiting very strong dollar trends. This suggests that, save for that instance, the Triple SMA Crossover system doesn’t fare so well under most scenarios.

Risk Tolerance: 10/20

I think this system deserves decent points for having a pre-determined stop loss based on the pair’s average pip movement, which takes into account the usual volatility and is able to limit losses. However, I also gave deductions since the stop size still seems too small and ends up getting hit on wide retracements. Perhaps an adjustment needs to be made?

Newbie-Friendliness: 10/10

This system is definitely newbie-friendly, as the rules are straightforward and easy to implement. It simply makes use of basic technical indicators such as moving averages while entry and exit points are easy to understand.

Total Score: 25/50

Bahh, just one look at the total score shows that this forex mechanical system definitely needs a lot of work! Based on my observations, the valid SMA signals are generated late during the trend and the trailing stop appears to be too tight.

Any other recommendations for tweaks? Or do you think we should add another technical indicator? Looking forward to seeing your feedback on this system!

  • ForExchange

    Hi Robopip,

    I liked the idea of your system but not the results. I also think it is really newbie friendly so it should be developed further on.

    I did some research to hopefully give you some ideas how to achieve better results and find better values. I wanted to keep all three MA as I am interested how 3 MA can work out (I use for myself at the moment 2 MA on charts so the comparison is interesting).

    Here is what I found for values:

    1. option:
    4-9-18 MA, introduced by R. C. Allen in his book in 1972.

    2. option:
    5-10-20 MA is basically just a variation of the first method.

    I do believe with such setups we will get more trade ideas, most likely more stops and whipsaws too.

    I was not thinking about what the right SL should be, I leave that task for you. I think we will get into the new trends a lot faster than we did with the original system.

    I also think that backtesting will get better results than forward testing as the current market is not optimal for trend following systems.

    I hope I could help you and you can use the above values for the next system.

    FE

    • Thanks for these suggestions!

  • Pingback: Accepting Forex System Suggestions for Triple SMA Crossover!()

  • Eagle

    Hi

  • Interesting! I’ll have a look at the MACD if it could improve the system’s signals but at the moment I have the ADX on.