Overview

This strategy uses the Absolute Price Oscillator (APO) indicator to generate trading signals and follow trends. The APO calculates the difference between two EMAs and trades crossovers above/below zero.

Strategy Logic

• APO consists of a faster and slower EMA, taking the difference between them.

• When APO crosses above the buy zone (default 3), go long. When it crosses below the sell zone (default -3), go short.

• Option to reverse signals - cross above sells, cross below buys.

• Curve shows price momentum, can find reversals on divergence.

This is a trend following strategy, using APO to determine trend direction for sustained long/short signals. Optimized parameters can track medium-term trends.

Advantages

• Simple implementation using basic moving average combination.

• APO gauges price momentum and direction.

• Default parameters generate medium-term sustained signals, avoiding over-trading.

• Can detect trend reversals based on price/indicator divergence.

Risks

• Prone to false signals and whipsaws in ranging markets.

• Lagging signals may miss quick reversals.

• No stop loss or position sizing, incomplete risk management.

Mitigations:

• Optimize parameters and test different combinations per instrument.

• Add filters to avoid trading in choppy conditions.

• Implement stop loss, e.g. trailing stop.

Enhancement Opportunities

• Parameter optimization for each instrument to find ideal pairs.

• Additional filters on price action or volume to reduce false signals.

• Dynamic position sizing based on volatility or account %.

• Optimized take profit such as trailing stop to follow trends.

• ML to assess probability of successful divergence signals.

Conclusion

This EMA crossover system using APO provides a solid foundation for trend following. With optimizations in parameters, risk management and filters, it can become an effective quantitative strategy. The core concept is simple and robust for further development.