The Three Moving Averages System

The Three Moving Averages System

The Three Moving Averages System can be viewed as an upgrade of the Simple Moving Average Cross system, which attempts to filter out whipsaws by introducing an extra moving average, the middle moving average.

Direction itself is established at the cross of the middle moving average with the slow or the fast moving average, similarly to how it was in the Simple Moving Average Cross System (fast crossing the slow).

However, in this system, the position of the fast moving average plays a filtration role. By making sure that a long trade is taken only when the fast is above the middle, and a short trade is taken only when the fast is below the middle, the cross itself (of the middle with the slow) is prevented from generating several whipsaws, as it could be stated that a signal can’t be good if the fast is below middle but middle just crossed slow upwards, as the fast tells about the most recent price movements, and such a position would indicate that it would continue going down, therefore whipsawing a buy signal ; conversely for the sell case.

Furthermore, the system doesn’t close a long trade when a sell signal comes in ; rather, it has an early close condition, when the fast moving average crosses the middle in the opposite direction.

This system is a mere upgrade of the Simple Moving Average Cross ; it is not too fancy, it doesn’t go too forward with layers of filtering. Therefore, use with care, on daily charts, just as the Simple Moving Average Cross is used.

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By | 2015-06-05T09:22:27+00:00 June 5th, 2015|Blog, Trading Strategies|0 Comments

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