I’m not giving up on this forex mechanical system just yet! That’s why I’ve decided to come up with another batch of tweaks for the third version of the Triple SMA Crossover system.
As I’ve mentioned in my previous entries, I’m pretty satisfied with how the shorter-term SMAs are generating signals a bit earlier during the trend while the ADX has been able to filter out the crossovers occurring in ranging market situations. What I’m hoping to improve are the profit-taking conditions to allow the system to lock in gains along the way.
5 SMA (yellow)
10 SMA (blue)
20 SMA (red)
ADX 15 (green)
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 5 SMA is above the 10 SMA, which should be above the 20 SMA. ADX should be greater than or equal 50.
Sell on the open on the next 4-hour candle when the 5 SMA is below the 10 SMA, which should be below the 20 SMA. ADX should be greater than or equal 50.
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 an initial 200-pip stop and trail it by the same amount to reduce risk along the way. This is a little wider than EUR/USD’s typical weekly ATR of around 150 pips. Close half the position once the trade goes 100 pips your way, then exit the remaining position and switch sides when an opposite signal takes place.
A quick review of the close-to-breakeven trades for the backtesting period suggests that the system might’ve locked in more profits with this new PT strategy. Do you think this adjustment will result to better profitability?