After my studies on the Amazing Crossover system and its different versions, I’ve decided to focus more on moving average crossovers. Here’s a simple forex mechanical system that involves three moving averages and simple trade conditions.
50 SMA (yellow)
100 SMA (blue)
200 SMA (red)
This mechanical forex system can be applied on the major pairs, such as EUR/USD or GBP/USD, using the 4-hour time frame.
Buy on the open of the next 4-hour candle when the 50 SMA is above the 100 SMA, which should be above the 200 SMA. Sell on the open on the next 4-hour candle when the 50 SMA is below the 100 SMA, which should be below the 200 SMA.
It doesn’t matter which SMA crosses down or up first, entry signals are valid when the three SMAs are arranged in an ascending or descending order.
Use a 150-pip trailing stop to lock in profits and reduce risk along the way. This is based on EUR/USD’s typical weekly ATR of around 150 pips.
Marked by the blue vertical lines are the valid crossover entries, as the SMAs are arranged yellow-blue-red or red-blue-yellow. Once these line up, buy or sell signals are generated at the open of the next 4-hour candle, with a trailing stop of 150 pips. I won’t go into the details of each trade just yet and you’ll have to wait and see how the backtests fare in my next blog post.
‘Til next week, humans!