How to use the Simple Moving Average Crossover Strategy in Forex and Stock Market Trading and what’s the real win rate of this SMA strategy? Lets find out.
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What’s the real win rate of the Simple Moving Average Crossover strategy? I have already tested the Exponential moving average strategy 100 times to find its real win rate. Well, in this video, why don’t we test the Simple Moving Average Trading Strategy 100 times, to find its real win rate. I have tested many different trading strategies on the Trading Rush channel, if you are a new to trading, watch them. And don’t forget to subscribe to the Trading Rush channel, and ring that notification bell. After all, you don’t want to risk your money on a strategy that doesn’t even work.
The Simple Moving Average Trading Strategy consists of 2 or more simple moving averages. All the moving averages used, have different input lengths. But the most common simple moving strategy, is the 9 and 21 period moving average strategy. In this strategy, a trader uses the crossover of the moving averages, to find entry and exit signals. Since simple moving average smooths out price data, you can gather a lot of info about the price direction. With the help of a simple moving average, even your dog can identify if the price is trending upwards, downwards, or is in a range. But if you combine two simple moving averages that smooths out price data, you can create a simple but effective trading system.
Here’s how the SMA crossover strategy goes. When the 9 period SMA, crosses above the 21 period SMA, it’s a buy signal.
Similarly, if the 9 period SMA, crosses below the 21 period SMA, it’s a sell signal.
Here, the 9 period simple moving average, is the fast moving average. And the 21 period SMA, is the slow moving average.
Now, if you take trades using this SMA crossover setup, where should you put your stoploss?
Well, in the long setup, when the 9 SMA crosses above 21 SMA, you can set your stoploss just below the swing low.
Similarly, in a short setup, when the 9 SMA crosses below the 21 period SMA, you can set your stoploss below the swing high.
Now, you can trade using this simple setup, but it’s not very effective, and I don’t recommend it, here’s why.
You see, if you can find where price wants to go in the long run, your job is half done. If you can identify where the price is trending in the long term, you are one step closer to making good money in trading. That’s because, when price is in a trend, it tends to move in one direction for a long time. If you take trade in the direction of the long term trend, you can achieve higher and better reward to risk ratios. In simple words, you will make more money. And you can easily find that direction of the long term trend, using another moving average. Usually, I use 200 Exponential moving average to find the long term trend. But this time, since the topic is about simple moving averages, I have used 200 period simple moving average to find the long term trend direction.
If price is above the 200 SMA, it’s an uptrend, and we should only look to buy. If price is below it, it’s a downtrend, and we should only look to sell.
So here’s how our complete modified Simple Moving Average Crossover strategy goes.
Only take buy entry signals, when 9 period SMA, crosses above 21 period SMA, and price is above the 200 period Simple Moving Average.
Similarly, only take sell signals, when 9 period SMA, crosses below the 21 period SMA, and price is still below the 200 period simple moving average.
I have tested this Simple Moving Average Crossover setup 100 times, with just few simple tweaks. These tweaks are there to make the strategy more effective in the long run.
When the crossover strategy gives a buy entry signal, the candle that is giving the entry signal, should be above the moving averages. If it is slightly touching it, it’s still a valid setup. Furthermore, the entry candle has to be above all 3 moving averages.
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