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Golden Cross Trading Strategy - Can it really give Golden Win Rate after backtesting 100 TIMES? - YouTube
Channel: TRADING RUSH
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Does the famous Golden Cross Trading Strategy
work better than the other strategies we have
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tested so far?
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You might have noticed that some News Channels
like to talk a lot about this Strategy when
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a stock gives a golden crossover.
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In this video, I have tested the Golden Cross
one hundred times, to see if the Golden Cross
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Trading Strategy actually works, and if not,
what are the disadvantages you will have while
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using this strategy.
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This is the 19th strategy we have tested 100
times in the strategies tested 100 times series.
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If you are watching this channel for the first
time, check out other videos on the channel
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where we tested different strategies to see
if they work or not.
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Also subscribe to the Trading Rush Channel,
because it's free, and you don't want to risk
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your own money on Trading Setups that does
not even work.
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The idea of the Golden Cross is really simple.
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Just smooth out the price using two moving
averages and buy at the crossover of the moving
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averages.
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In a Golden Cross Strategy, a 200 period moving
average and a 50 period moving average is
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used.
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Here, the 50 moving average is the fast moving
average, and 200 is the slow moving average.
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Usually, these moving averages are simple
moving averages, and I have used the same
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while backtesting it 100 times.
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The Golden Cross Trading Strategy goes something
like this.
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When the 50 period moving average, crosses
above the 200 period moving average, it's
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a long entry signal.
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Similarly, when the 50 period moving average
crosses below the 200 period moving average,
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it's a short entry signal.
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Now the Golden Cross strategy is more of a
buy and hold kind of strategy.
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It is mostly used on the higher timeframes
to hold a stock or forex pair for a long period
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of time.
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Unlike other indicators we have seen on the
Trading Rush channel, the Golden Cross Strategy
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doesn't tell you where to put the stoploss.
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But most people like to set the stoploss just
below the 200 period moving average.
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Furthermore, many traders like to trail the
stoploss with the 200 period SMA to catch
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the big move.
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But as you already know, market is in a range
most of the time, so many traders rarely book
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a very big profit.
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Obviously, you can't take every buy signal
given by the golden Cross Trading Strategy,
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because it will give a lot of false entry
signals in a range market.
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To filter those false signals however, you
can modify the strategy and only buy, when
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the candle is completely above the 200 period
moving average when the crossover happens.
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Similarly, only sell, when the candle is completely
below the 200 period moving average when the
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crossover happens.
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So here's the complete modified Golden Cross
Strategy.
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If the 50 period SMA crosses above the 200
SMA, and if the cross over candle is above
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the 200 SMA, it's a buy signal.
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Stoploss goes below the 200 SMA line.
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Similarly, if the 50 SMA crosses below the
200 SMA, and if the crossover candle is below
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the 200 SMA, it's a sell signal.
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The stoploss goes above the 200 SMA line.
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If you want to trail the stoploss, you can
simply trail it above the 200 SMA as it goes
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down.
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Some traders also like to exit the position
at the next crossover.
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For example, if you buy when the 50 SMA crosses
above the 200 SMA, your exit signal will be
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when the 50 SMA crosses below the 200 SMA.
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Similar thing applies to the short setup,
just opposite.
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Since we tested other strategies 100 times
with a fixed reward to risk ratio, and to
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compare this data with the data we got from
other strategies, I have tested the Golden
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Cross Strategy with fixed reward to risk ratio
as well.
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So after testing it one hundred times, here's
what happened.
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Number 1.
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Since the Golden Cross uses simple moving
averages to find the entry signal, and since
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moving averages are lagging indicators, the
entry signals were lagging too.
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That's obvious, but because of the late entry,
the stoploss was sometimes way too far which
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led to a bad reward to risk ratio.
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Far away stoploss is not really a problem
if the price makes a big move in your favor.
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But as you already know, most of the time
price is moving sideways.
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So the probability of trade making a big profit
consistently is really low, unless there is
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some other catalyst that is moving the market
strongly in one direction.
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Number 2.
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Since we modified the Golden Cross to filter
false signals, the losing trades were successfully
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avoided.
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But the performance was not that good when
compared to other strategies we have seen
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on this channel.
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Even if you don't use a stoploss, and only
exit when the Golden Cross gives an opposite
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crossover, you are probably not going to be
way more profitable than the fixed profit
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setup.
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During this backtest, there were two trades
that had more than 10 times profit potential.
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But then there were many trades that had 3
times more loss potential than the fixed stoploss.
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So even if you had booked the 10 times profit
in 2 trades, the multiple trades with 3 times
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more loss would have brought your average
down.
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You should probably use some other indicators
to confirm entry signals, instead of using
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the Golden Cross alone.
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Since money management is one of the key in
trading, it is a good idea to use a proper
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stoploss and a favorable reward to risk ratio.
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So after testing the Golden Cross Trading
Strategy, I got the win rate of approximately
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42 percent with the reward to risk ratio of
1.5 to 1.
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And since this is an approximate win rate,
we can safely say that the Golden Cross Trading
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Strategy, is a hit or miss strategy, just
like the aroon strategy.
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In other words, this strategy on its own doesn't
have a very high probability of making big
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profits consistently.
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I had 5 winners and 5 losing trades in a row.
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I started with an account balance of 10000,
and after 100 trades, it was only up by 500.
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Compared to other strategies we have seen
so far on this channel, this is not the best.
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Furthermore, the Golden cross strategy took
the longest time to complete 100 trades.
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In most videos in the strategies tested 100
times series, I have tested the strategies
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on the same pair which is Euro JPY.
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But for this strategy, I had to switch to
3 different pairs to take 100 trades.
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That's because I ran out of data on 2 forex
pairs.
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This means, that the golden cross strategy
is not only a hit or miss strategy, but it
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also takes a lot of time to make profit.
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Most indicators we have tested so far, were
able to make a lot more profit than this in
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a shorter amount of time.
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The Golden Cross Strategy is a really old
strategy.
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Since then, traders have created many different
indicators that actually work, and we have
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tested many of them on the Trading Rush channel.
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You should test your strategy as well, and
you can use the Official Trading Rush App
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to do that.
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It saves a lot of time by calculating win
rate, profit graph, and other data in just
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one click.
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Download it from the Play Store, or using
the link in the description.
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That's all.
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You now know more about the Golden Cross Strategy.
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Liked the video if you liked it.
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Subscribe and ring that notification bell
so you don't miss new videos, where we test
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more strategies 100 times to find their win
rates.
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After all, you don't want to trade using an
indicator that only gives your money to your
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broker, and not vice versa.
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Thanks a lot for watching!
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