Overview

The fast QQE crossover trading strategy based on trend filter is a trend following trading strategy that uses fast QQE crosses with Moving Averages for trend direction filtering. QQE or Qualitative Quantitative Estimation is based on the relative strength index, but uses a smoothing technique as an additional transformation. Three crosses can be selected (all selected by default):

• RSI signal crossing ZERO (XZERO)
• RSI signal crossing Fast RSIatr line (XQQE)
• RSI signal exiting the RSI Threshhold Channel (BUY/SELL)

The (BUY/SELL) alerts can be optionally filtered by the Moving averages:

• For BUY alert the Close must be above the fast MA and fast MA (EMA8) > medium MA (EMA20) > slow MA (SMA50).
• For SELL alert the Close must be below the fast MA and fast MA (EMA8) < medium MA (EMA20) < slow MA (SMA50).

and/or directional filter:

• For BUY alert the Close must be above the slow MA (SMA50) and the directional MA (EMA20) must be green.
• For SELL alert the Close must be below the slow MA (SMA50) and the directional MA (EMA20) must be red.

The XZERO and XQQE are not included in the filtering, they are used to indicate pending BUY/SELL alerts, particularly the XZERO.

This strategy should work on any currency pair and most chart timeframes.

Strategy Principle

The core idea of this strategy is to use the directional crossover of the fast QQE indicator as trading signals and filter out noisy trading signals through the combination of moving averages to capture trend direction.

Specifically, the strategy uses the following indicators and signals:

Fast QQE Indicator: This is an RSI based indicator with additional smoothing to make it more sensitive and fast. The indicator consists of three lines: the middle line is the exponential moving average of RSI, the upper line is the middle line + fast ATR * a factor, and the lower line is the middle line - fast ATR * a factor. When the RSI goes above the upper line, it is a sell signal. When the RSI goes below the lower line, it is a buy signal.

Zero Line Crossover: It generates signals when the middle line of RSI crosses the zero line. Upward crossover is buy signal and downward crossover is sell signal. These signals indicate the prelude of trend changes.

Channel Breakout: It generates signals when the middle line of RSI enters the set threshold channel. Breaking the upper channel is the sell signal and breaking the lower channel is the buy signal. These are stronger trend signals.

Moving Average Combo: Use a combination of fast (8 periods), medium (20 periods) and slow (50 periods) moving averages. When the three lines are arranged as: fast > medium > slow, it is an upward trend. When arranged as fast < medium < slow, it is a downward trend. The combo is used to determine the overall trend direction.

Trend Direction Filter: A buy signal is only generated when the close price is above the slow moving average and the medium moving average (20 periods) is upward (highest price of the period > lowest price). A sell signal is generated only when the close price is below the slow moving average and the medium moving average (20 periods) is downward. This can filter out some reverse fake signals.

By combining the use of crossover signals from the fast QQE indicator and trend filtering from moving averages, it captures short-term reversal points on major timeframe trends to form a relatively complete trading system. At the same time, the indicator parameters are set to be relatively sensitive so as to capture the turning point of trends as early as possible.

In summary, this is a strategy that tracks medium and long term trends, uses fast indicators to capture timing of short term reversals for entry/exit, and utilizes moving average filtering to reduce the risk of trading against the direction and thus maximize returns.

Advantages of the Strategy

• Uses fast and sensitive QQE indicator to quickly capture reversal signals
• Applies multiple moving averages to determine large cycle direction and avoid trading against trends
• Includes multiple cross signals that can be used in combination to increase profit opportunities
• Adjustable parameters that can be optimized for different products and timeframes
• Uses indicator's own channel breakout signals instead of drawing separate channels, avoiding parameter dependency
• Can capture short term reversal moves very well under large trend cycles
• Simple and clear concepts, easy to understand and implement

Risks of the Strategy

There are also some potential risks with this strategy:

• Fast indicators tend to produce false signals which cannot be fully filtered out by moving averages, risk of tracking wrong direction exists
• When large cycle trend reversal happens, reverse trade signals tend to form which poses risks
• No consideration of money management factors, risks of over trading and losses exists
• No stop loss in place, risks of expanding losses is large
• Backtest data fitting risk, actual performance remains to be verified

Counter measures and solutions include:

• Adjust moving average parameters, use more cycle lengths to determine trends
• Add other indicators like MACD, bias etc for combo filtering
• Add stop loss strategies to control single trade loss size
• Real money testing, optimize parameters

Optimization Directions

There is room for further optimization of this strategy:

1. Optimize fast and slow line parameters of QQE indicator to find optimum parameter combination
2. Test more moving average combo to find optimal filtering performance
3. Add other indicators like MACD for auxiliary signal filtering
4. Apply money management strategies to optimize position sizing
5. Set stop loss strategy to control downside risk per trade
6. Optimize parameters based on different products
7. Determine trend on even higher timeframes to avoid being misled by short term reversals

With parameter optimization, combining more indicators, and aided by feasible money and risk management practices, the performance of this strategy can be improved for real trading.

Conclusion

Overall the fast QQE crossover trading strategy based on trend filter is a very considerable choice. Its strength lies in quickly capturing reversal trading opportunities while using multiple moving averages to determine major trends and avoid trading against them as much as possible. With optimization of indicator parameters and filtering criteria, coupled with strict money management, this strategy can generate relatively steady investment returns.

Of course the risks cannot be ignored. Real money testing and continuous optimization adjustments are necessary to ensure practicality and reliability of the strategy. In conclusion, it is worthwhile for investors to study and track for long term practice. It is believed that with the advancement of algorithmic trading technologies, this type of strategies based on fast indicators and trend filtering will see further improvements and proliferation.