Equal-Length EMA/SMA Crossover Momentum Strategy

14 Feb 2021

Overview:

• This momentum and trend-following strategy captures the majority of any trending move, and works well on high timeframes.
  
• It uses an equal-period EMA and SMA crossover to detect trend acceleration/deceleration, since an EMA places a greater weight and significance on the most recent data.
  
• This version is optimized for longs, and designed to cut your losses quickly and let your winners run.
  
• To reduce noise and optimize entries, we combined this with an overall trend bias for further confluence.
  

How it works:

• Signals are determined by the crossover of an EMA and SMA of the same length, e.g. EMA-50 and SMA-50.
  
• The overall trend bias is determined using a slower SMA golden/death cross, e.g. SMA-50 and SMA-100.
  
• The signal is stronger when it occurs in confluence with the overall trend bias, e.g. when EMA-50 crosses over SMA-50, while above the SMA-100. This is analogous to only opening long positions in a bull market.
  

Signal description:

• Trend Buy: EMA crosses above SMA, and overall trend bias is bullish. Buying is in confluence with the overall trend bias.
  
• Risky Buy: EMA crosses above SMA, and overall trend bias is bearish. Buying is early, more risky, and not in confluence with the overall trend bias.
  
• Late Buy: SMA crosses above BIAS_SLOW. This gives further confirmation of bullish trend, but signal comes later.
  
• Sell: EMA crosses under SMA.
  

Strategy entry and exit conditions:

• This version enters a Long when "TREND BUY" is signalled.
  
• This version has Sell/Shorts disabled because UP ONLY.
  
• Long entry: Strategy enters Long when EMA is above SMA, while overall trend bias is bullish.
  
• Long exit: Close long when EMA crosses under SMA.