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