Trading systems using xpMA and other moving averages

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The elusive holy grail trading system is still….errrrrr….elusive. However, as always, the best ideas can come out of the worst ideas. So it always looking at varrious trading systems that you know deep down are not going to provide you with the greatest trading system in the world but maybe a few ideas that will help in your quest. It also always worth looking at such systems as a way of learning what not to do.

Below is a chart with the xpMA indicator attached to a 1 minute Ftse 100 index chart. As you can see it is great at marking swings within a trend. The XP Moving Average is a normal moving average indicator which allows you to select different types of averages and also shows you which direction the moving average is pointing. So in essence nothing “new”. But none the less is looks good when you have a play with the settings.

xpMA

But as with all moving average indicators they aren’t so good when in tight sideway ranges. So how can we avoid these sessions? You can’t. The problem is if you start filtering bad trades you will naturally also filter out some good trades. However, if you can find a balance you have a good chance of success or at least breaking even.

Looking at the next 2 charts you can see the problems with moving average directional indicators. Choppy sessions lead to many false trades. However, applying the Parabolic SAR indicator you can cut out nearly half off them. Naturally this will effect good trades as well. However, in my experience on the big swings one would rarely stay in a trade as long as a SAR would keep you in anyway. So it is unlikely to effect winning trades as much as it will benefit you from losing trades.

xpMA3xpMA2

But one this is for sure moving average trading systems using the xp Moving Average or a different type of moving average are not ideal for an ‘always in’ trading system. So you will need something to filter your entry and/or exits. Something like above can work to a degree. The best thing is to take a couple of days worth of charts. Apply the xpMA and then calculate net points if trading as an ‘always in’ trading system. Then add something like a SAR and recalculate. Then list the individual trades next to each other for both methods. You will have to put a zero in for trades not taken in the second system method.

Doing this will allow you to compare how much one trade made in the ‘always in’ method to the other trading method. This will show you very quickly how effective adding a filter is.

Remember this is about finding away to reduce the losses and false trades rather than about increasing winners.

Have a play and see how you get on.

Download For MT4 : xp Moving average

MA Type Settings Reference List For xpMA Indicator

Simple moving average 0
Exponential moving average 1
Smoothed moving average 2
Linear weighted moving average 3
Double Exponential Moving Average 4
Triple Exponential Moving Average 5
T3 Moving Average 6
Jurik Moving Average 7
Hull Moving Average 8
DECEMA Moving Average 9
SALT indicator 10

Note: You may have to install some of the advance indicators in order to get them to work on this indicator.

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