3.14.1 MA Dual Crossover

Figure 3.69: MA Dual Crossover.

• Buy - Shorter MA crosses over longer MA

• Sell - Longer MA crosses over shorter MA

Parameters available:

• Shorter Period - the period of the shorter-duration moving average line

• Longer Period - the period of the longer-duration moving average line

• Exponential - Select ‘yes’ to use exponential moving average otherwise use simple moving average

• Black Window - the duration where the MA lines may cross many times without affecting the triggering of the stock

• t1 - the number of periods that the two MA lines must not cross before the Black Window

• t2 - the number of periods that the two MA lines must not cross after the Black Window

• Rule type - please refer to 140 for details

• Data type - please refer to 141 for details

Setting MA Period
MA are lagging indicators. The longer the MA the more insensitive it is to recent price action but it indicates a clearer trend and momentum of the price movement. Hence we need to set the MA-period according to our investment horizon. For example, in medium-term trading, we tend to use MA(25) and MA(50) as guidelines. Also, EMA is relatively better than MA in tracking recent price action.

Setting t1
t1 enables us to screen for stronger crossover signals. The longer t1 is, the clearer we are that prior trend was strong and thus it is more likely that the crossover implies more momentum.

Setting t2
t2 determines how soon you want the signal to be triggered after the crossover which happens in Black Window. If you are eager to catch the trend as soon as the crossover happens, set t2 to 0. Less aggressive traders can set t2 to 3-5 days, avoiding possible whipsaws.

Setting Black Window
Black Window determines the period where crossover(s) can happen. The minimum value you can set is 1. If you set a long Black Window, you can set shorter t2 and vice versa so you do not get in too late after the trend has formed.