EMA Golden Cross is a basic strategy using the moving averages. It is meant to capture a longer-term trends and it can be used as a stand-alone strategy, or as a starting point for the more advanced strategies. The template strategy in trading the USD/CAD pair.
A simple and robust strategy, which on average, generates 2-3 trades per week.
EMA (exponential moving average) is the average of the closing prices of the given number of bars back, with the added feature of giving more weight to the more recent bars.
The smaller the number of bars used for the calculation of the moving average, the more sensitive it is going to be the recent changes in the price. The longer the period, the fewer trading signals will be generated.
When the shorter moving average crosses over the longer moving average from below to above, a buy signal is generated. Accordingly, the sell signal is generated when the shorter moving average crosses over the longer one from above to below.
The strategy uses a 1-hour bars. The default settings are 18 bars for the shorter moving average and 28 bars for the longer moving average. When the shorter moving average crosses from below to above the longer moving average the strategy opens a long position. When the opposite occurs, a short position is opened.
The strategy includes a take-profit (default setting = 160 pips) and the stop-loss (default setting = 40 pips).
The positions can be closed in one of these three situations:
- stop-loss is hit
- take-profit is hit
- Opposite direction signal is generated – in such case, the position will be reversed
The expected ratio of winning to losing trades is around 1:3, however the average p/l from winning trades should be around 3-4 times larger than the losses from the losing trades.
This strategy performs best in a market with the strong trends and is likely to deliver poor results during the prolonged period with no apparent trend in either direction – in such market conditions it is likely that the strategy will generate many false signals resulting in the losses.
The strategy can be further modified by adding additional conditions to open the position, or custom exits in order to reduce the frequency and impact of the false signals.