CONSTRUCTION OF TRADE STRATEGIES FOR FOREX MARKET, USING MOVING AVERAGES.
Probably many of us heard a phrase “all big money on exchange are made due to the trend following”. I do not know exactly if it is true or not, but the signals which are given by MA (Moving Averages, sliding averages) about the turn of trend or its continuation are considered to be accurate can be applied in creation of trade experts advisors.
The correct use of MA can result in considerable incomes, though many participants of Forex market apply this instrument in a technical analysis. Our opinion is that any method must have a statistical basis, in other words it should be programmed as expert advisor (trade expert) and tested on historical data. And if the trade system showed an income on history, it will be profitable in the future with the large degree of probability.
I also want to notice that MA of all of types are considered to be filters. The most important task during the construction of the mechanical trade system (which are based on filters) is a choice of filters descriptions (in our case is a choice of MA period). Probably many heard that some traders spend the whole life exactly on this
.
There are three types of sliding averages:
1. Simple sliding averages
Each of moving points is an average price for the previous N days.
2. Self-weighted sliding averages
In self-weighted sliding averages type the greater weight is given to the last data, and the smaller weight is given to the more early data. Self-weighted sliding average is calculated by multiplying each of closing prices (in according row) by a certain weight coefficient.
3. Exponential sliding averages
Exponentially smoothed sliding average is determined by adding a certain share of current closing price to the previous value of sliding average. In the case of exponential sliding averages the last closing prices have greater weight.
We can not say exactly which MA is better.
Which MA is better
What sliding average it is necessary to use depends on your style of trade and your preferences. Simple sliding average obviously has a delay, but Exponential sliding average can be more flexible to rapid gaps. Some traders prefer to use Exponential sliding averages for shorter time periods for rapid display of changes. Other traders prefer Simple sliding averages for long-term periods in order to determine the long-term changes of trends. The type of sliding average and time period will strongly depend on a concrete market instrument and on how it reacted in the past.
Somebody may think that high sensitiveness and earlier signals must be more advantageous. It is not always true and it carries a big dilemma for a technical analyst: the choice between a sensitiveness and reliability. The more sensible indicator is, the more signals appear. These signals can be in time, but the amount of false signals increases while sensitiveness increases. A less sensible indicator gives fewer signals. However, less sensitiveness leads to less amount, but more reliable signals. Sometimes these signals can be late.
For Sliding averages the same dilemma appears. Shorter Sliding averages will be more sensible and will give more signals. EMA, which is more sensible, than SMA, probably will give more signals also. However, the amount of false signals and rapid turns will increase also. Longer Sliding averages will move slower and give fewer signals. These signals, probably, will appear more reliable, but they also can be late. Every trader must experiment with different types and periods of Sliding averages, in order to find out intercommunication between a sensitiveness and reliability of signal. It will enable to get a profitable expert advisor. We have developed Upstream expert advisors for a few currencies. The work of these advisors is based on MA. Upstream expert advisors showed quite good results in a real trade.
Strategy Tester Report UPSTREAM GBPUSD
Strategy Tester Report UPSTREAM AUDUSD
Read more info about expert advisors UPSTREAM on our web: http://iticsoftware.com
BJF TRADING GROUP
http://iticsoftware.com
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