Dual Moving Average Reversal Trading Strategy
Overview
The dual moving average reversal trading strategy combines the Bollinger Bands reversal trading strategy and the dual exponential moving average trading strategy to design a comprehensive signal judgment trading strategy. It can be used in markets like stocks, forex, and cryptocurrencies.
Strategy Principles
The strategy consists of two parts:
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Bollinger Bands reversal trading strategy
Use two lines from the Bollinger Bands indicator - %K line and %D line. Go long when the close price is lower than the previous day's close for two consecutive days and the %K line is above the %D line; go short when the close price is higher than the previous day's close for two consecutive days and the %K line is below the %D line.
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Dual exponential moving average strategy
Calculate the 20-day and 20-day*2 dual exponential moving averages. A trading signal is generated when the price crosses over or under the dual moving averages.
The combined signal judgment rule: A actual trading signal is generated only when the trading signals from both strategies agree.
Advantage Analysis
The biggest advantage of this combined strategy is its high reliability and few false signals. Because it requires the signals from two different types of strategies to trigger at the same time, which filters out some of the false signals that may appear in a single strategy.
In addition, by combining reversal and trend strategies, it can capture both short-term reversals and medium-term trends of the underlying securities.
Risk Analysis
The main risk of this strategy is that when the market is in long-term oscillation, the two strategies may fail to produce consistent signals, resulting in invalid market conditions. At this point, traders need to suspend the use of this strategy and wait for a clear trend to form.
In addition, as a medium and long-term indicator, the dual moving average may fail when short-term reversals occur rapidly. This requires traders to judge the broader market trend with more indicators.
Optimization Directions
The strategy can be optimized in the following ways:
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Add more parameters like stop loss price, trailing stop loss price range etc to make the strategy more controllable.
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Add more indicators to form multiple filter criteria and eliminate more noisy trades. For example, combine with MACD, KD and other indicators.
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Optimize indicator parameters like Bollinger period, moving average period etc, to find the best parameter combination.
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Test the effectiveness of this strategy respectively in different products (stocks, forex, crypto etc) and select the best suitable ones.
Conclusion
The dual moving average reversal strategy generates relatively reliable combined trading signals by combining reversal and trend strategies. It suits traders who are interested in both short-term reversals and medium-term trends of the securities’ prices. But note that the strategy may fail in long-term range-bound markets. By optimizing parameters and adding more indicators, the practicality of this strategy can be further enhanced.
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start: 2023-01-08 00:00:00
end: 2024-01-14 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
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// Copyright by HPotter v1.0 12/04/2019
// This is combo strategies for get - 1