• English
  • 简体中文
  • 繁體中文
  • Tiếng Việt
  • ไทย
  • Indonesia
Subscribe
Real-time News
Japans 20-year government bond yield fell 2.0 basis points to 2.490%.South Koreas central bank decided the interest rate at 2.5% on July 10, in line with expectations of 2.50% and the previous value of 2.50%.On July 10, an important panel in the U.S. Senate debated proposed digital asset regulation, with Republicans calling for a moderate approach and Democrats warning of potential loopholes and conflicts of interest. "Our job is to set clear, loose guardrails to protect investors, stop fraud, and allow responsible innovation to flourish," said Tim Scott, chairman of the Senate Banking Committee. He noted that legislation should clearly define which tokens are securities and ensure appropriate protection from illegal financing. Republican Senator Hagerty and others released market structure principles last month, calling for a clear definition of the legal status and regulatory agencies of digital assets. The plan is largely in line with the CLARITY Act proposed by the House Committee in June. Hagerty said he was not worried about losing bipartisan support for market structure legislation and predicted that Democrats who support stablecoin legislation would begin to act.Foreign investors bought Japanese government bonds worth -164.6 billion yen in the week ending July 4, with the previous value revised from 105.26 billion yen to 105.91 billion yen.Japan bought 512.7 billion yen of foreign stocks in the week ending July 4, compared with 190.6 billion yen in the previous period.

How to Enhance Your Moving Average Crossover Strategy

Aria Thomas

Mar 25, 2022 09:33

M2.png

Moving Average Crossover

The moving average crossover strategy is designed to locate the middle of a trend. A trend is defined as price movement in which prices move in a certain direction over time. In general, trends are either upward or downward, while sideways movements are considered consolidation rather than trends. Capital markets trade in tight consolidative patterns around 70% of the time and trend just 30% of the time. With this in mind, it is critical to be able to recognize a trend and capitalize on it as soon as it becomes apparent.

What Is the Best Way to Capture a Trend?

Short-term moving averages may capture short-term patterns. A moving average is the average of a specified time, and when a new data point is added, the first period of the average is discarded. A moving average crossover strategy looks for instances when a short term moving average crosses above or below a longer term moving average to create a short term trend.


For example, if the 5-day moving average of USD/JPY prices crosses above the 20-day moving average of USD/JPY prices, a short term trend may be in place. One trading strategy may be to buy USD/JPY prices when the moving averages cross over, hoping to ride an upswing in the currency pair. An investor may try to capture up, down, and sideways movement by combining a short, medium, and long term moving average.


Longer moving averages are used to capture longer-term patterns in a financial market. When the 20-day moving average of gold prices crosses below the 50-day moving average, as seen in the gold chart, a medium term trend is deemed to be in place.

Problems with a Standard Moving Average Crossover

The notion of a moving average crossover is appealing, but a basic issue is that while the market is consolidating, a moving average crossover will provide a lot of false signals. Between April 2014 and April 2015, the 5 / 20 moving average crossover provided 5-signals that did not forecast a trend. This does not imply you would not have earned money trading this strategy, but you would not have seen a big upward (or negative) bias in the currency pair.


One method to improve a moving average crossover strategy is to include extra research that will sift out some of the misleading signals. For example, by adding a Bollinger band (developed by John Bollinger - this research helps form a histogram of prices above and below a mean level) to the 5 /20 crossover strategy, you can also assist in defining a range.


In the instance of the USD/JPY, you could only buy the currency pair when the 5-day moving average crossed the 20-day moving average and the exchange rate crossed above the Bollinger band high (2 standard deviations above the 20-day moving average) during an x-day period. The number of days (x) is subjective, although a duration of fewer than three days is desirable. By adding another layer, the strategy becomes more resilient, but also less common.