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I Tested The 3 Moving Average Crossover Strategy with an Expert Advisor - SURPRISING RESULTS - YouTube
Channel: Trading Strategy Testing
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can we trade forex using a three moving
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average crossover strategy
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in theory it looks extremely profitable
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but what if we back test this strategy
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are we going to double
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or blow up our account watch this video
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till the end to find out
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[Music]
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hi traders in today's video we are going
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to test a simple trading strategy
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that involves moving averages this
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strategy was suggested by one of our
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subscribers
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named asim azar i promised him in the
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comments section to backtest this
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strategy
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and share the results and the expert
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advisor used for free
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this strategy is quite popular and it's
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probably among the first forex trading
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methods
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that we have all gone through when we
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started our trading journey
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as usual we are going to describe the
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strategy
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test it then share with you the results
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and our feedback
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so make sure to watch till the end to
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find out whether you should use the
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three moving average crossover strategy
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while trading forex stocks crypto or
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other financial markets
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before we begin our video i would like
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to thank asim
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for submitting this strategy and i
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invite you guys to submit yours
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if you want us to analyze them i will
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leave the link in the description box
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to be honest with you i did some
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intensive research before making this
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video
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on youtube alone there are plenty of
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videos highlighting trading strategies
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that rely
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essentially on moving average indicators
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they are usually discussed and sometimes
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back tested
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we all know that manual back testing is
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not 100
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reliable as traders might miss one or
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two trades
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or manipulate the results to sell the
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strategy or a course
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that's why this video will give you the
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final answer
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as we will be using an expert advisor
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and run this strategy
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throughout a time range of three years
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let's get started the strategy is
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extremely simple
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we just need to attach three moving
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average lines to the chart
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and use them to define the entry exit
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and take profit levels
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before we begin back testing the
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strategy let's describe it quickly
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we first need to attach three different
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moving average
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lines to the chart we are going to use
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the simple moving average
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if you are on trading view you can add
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them separately
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or use one of the combo indicators that
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allow you to add a triple moving average
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setup to your chart
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we are using the simple moving averages
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of 15
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25 and 50 periods
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we can add them separately to make our
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chart clearer and easier to analyze
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you can do the same thing if you are
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working on metatrader
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just make sure to use three distinctive
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colors to help you differentiate the
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lines
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i have assigned the green color to the
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15 sma
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the blue color to the 25 sma
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and the red color to the 50 simple
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moving average
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the chart will look something like this
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when the 15 sma crosses above the 25
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sma and the price is above the red line
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which represents the 50 simple moving
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average
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we go long if the following candle
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closes higher than the previous one
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you can look at this example this is by
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the way the daily chart
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so technically speaking we need to wait
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until the next day
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after the crossover to make our decision
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and this makes this strategy suitable
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for busy traders
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feel free to leave any questions you
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might have in the comment section
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we are going to position our stop loss
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at 200 pips below the entry point
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and the take profit will be 400 pips
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that's a massive one to two risk to
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reward ratio
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let's look at the short setup again
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that's extremely straightforward
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when the 15 sma crosses below the 25
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sma we go short if the price is below
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50 periods sma and the following candle
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closes
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as a lower price the risk to reward
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ratio is the same honestly
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i wanted to aim for more pips as this is
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a swing trading strategy
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and the 200 pip stop loss is super tight
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and can be triggered especially if we
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enter the trade before
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london or new york sessions but as we
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will be back testing this strategy
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on euro usd pairs i think the volatility
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will be manageable
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before we begin back testing let's
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quickly look at a live
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example using the replay mode you can
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see here that the 15
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sma crossed above the 25 and the price
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is above the red line
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we go long as the following candle after
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the crossover closed at a higher price
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this is a successful trade now it's the
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opposite setup
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the 15 sma crossed below the 25
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and the price is below the 50 simple
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moving average lines
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we can see that the following candle
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closed at a lower price
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we go immediately short and guess what
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this is another successful trade let's
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not get too excited yet
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as the two examples were hand-picked we
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need to back-test the strategy now to
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see whether it's profitable or not
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as usual we are going to use an expert
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advisor
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which is designed according to this
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strategy
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you can download and use it for
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absolutely free at the end of the video
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well we just need to click here and pick
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the right settings
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it's self-explanatory so no need to go
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through it
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we are going to back test this moving
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average crossover strategy
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using a one thousand dollar initial
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balance
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and one micro lot volume size
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regarding the other settings we don't
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need to mess with them that much
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simply adjust the take profit and stop
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loss level
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then we have to choose the three moving
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averages needed for this back testing
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we are going to select 15 25
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and 50 period simple moving average as
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fast medium and slow sma
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respectively if you mistakenly adjust
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one of the other
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settings you can just hit reset and redo
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the work
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once you're done with the settings
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simply click on start
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while waiting don't forget to give this
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video a thumbs up
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and subscribe to help the channel grow
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back testing your strategy using an
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expert advisor is the most reliable way
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to see whether a strategy is working or
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not but that's not all
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remember to use your demo account for at
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least three months before you use
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any strategy with your hard-earned money
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awesome we can see that the balance has
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increased exponentially at the beginning
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of our back testing process
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we managed to double up our initial
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balance
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then we encountered some continuous
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losing trades that dropped the equity
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down
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i'm a bit skeptical about this moving
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average crossover strategy
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due to this important drawdown
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let's look at the final report the
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modeling quality is 90 percent
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which means that this back testing
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process was reliable
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we have recorded 31 trades in total and
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the success rate is 48.39
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which is tremendously good considering
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the one to two risk
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to reward ratio we are using on top of
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that
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we have made a total profit of 488
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dollars and we only had two consecutive
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losing trades
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which were responsible for the drawdown
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recorded
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now let's look at the bad news the
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drawdown recorded is almost 70 percent
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which is extremely high but as you know
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it's a detail that could be improved
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especially
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if you've watched the other videos on
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this channel
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at this stage i won't recommend you
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using this strategy to trade forex or
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any other financial markets
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the drawdown is high and we might get a
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margin call if we get stuck in a series
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of continuous losing trades
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the best thing to do now is analyze the
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losing trades
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and find out the reason why they were
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not successful
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and then optimize the strategy
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accordingly
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i think it's worth trying there are
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plenty of ways to do that
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we can run the same process again but
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with the visual mode enabled and
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analyze the losing trades once done
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let me know in the comments section if
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you want me to do that in a coming video
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and give this video a big thumbs up so i
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know you're interested in this topic
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don't forget to check out the other
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videos on this channel
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happy trading
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