3 Moving Average Trading System

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Moving average trading systems are a taboo subject but as always, I think anything is worth investigating even if just to dismiss it.

This MA concept involves using 3 moving averages which are connect to each other mathematically. All you have to do is select two moving averages and multiply them together to get the 3rd.

So if you have chosen MA 4 and MA 12 then your third moving average would be 4×12 which would thus be MA 48. What this does is gives you 3 trends from which to build a picture of the current price action.

Assuming that the 3 MAs are A B and C (AxB) then we can create the following generic trading rules for this trading system:

1. When the C is moving up buy when the A crosses up over the B . and/or when the A crosses above the C. When the B crosses above the C consider adding to your long position. Exit and stand aside when the A crosses back below the B

2. When the C is moving down sell short when the A crosses below the B . and/or when the A crosses below the C. When the B crosses below the C consider adding to your short position. Exit and stand aside when the A crosses back up over the B.

3. Only initiate trades in the opposite direction of the intermediate trend when the A crosses above or below the C, preferably after the C has already changed direction.

4. This A/B crossover will keep you trading in the trend with only a small lag and on the sidelines during corrections. The lag only becomes more substantial at reversals of the intermediate trend (a A/B crossover), a small price to pay at these uncertain times of trend transition.

This is obvious quite a generic and simple concpet but definitely has merit. The principle of waiting for one thing to happen in the direction of a bigger/longer trend is sound one in my opinion regardless of what trading system you use to trade. You need to build up a trading picture that will give you as much information as you need to place a trade with calculated risk and reward. Something like this 3 Moving Average Trading System is a good starting place.

4 Responses

  1. Tom Leeson says:

    Statistically classic double moving averages get you in and out earlier and have large peaks and troughs, triple moving average systems have lower drawdowns and less profit oppurtunity- but are resilient to chop. Your system described is a variant of triple and a double with a filter.
    Using the triple as a kind of higher time frame trend filter or direcitional bias filter plus some triple variant rules. I agree it does have merit for many trading systems -you can even apply it to mean reverison systems to only trade with the trend.

  2. Er.SS Hari says:

    Highly practical lesson.This seems to be the middle path between a trend indicator and oscillators but in a highly volatile market bollinger band may serve better as it responds to volatility.During high volatility moving averages response may delay decisions and keep you out of market if playing on margin money.

  3. Jason says:

    Thanks for all your comments by the way.

  4. Khumbuza says:

    I am looking for a method of configuring the SMA100 CROSSOVER ALERT in MT4
    so that when ever the price crosses the SMA100 (UP) or (DOWN), I get an ALERT.

    I only need an alert when the price crosses the SMA100 either DOWN or UP.

    How can this be setup. If anyone has a link for this (SMA100 CROSSOVER ALERT) that will be great.

    Am really desperate.

    Can some help please.

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