Improved Golden Cross Trading Strategy
In this article we are going to explain an improved version of the well-known golden cross strategy . This strategy uses the well-known golden cross pattern as a basis.This is a signal derived from two moving averages crossing each other – a shorter and faster moving average, 50 period for example, crossing a longer and slower moving average, 200 period for example.
The chart below illustrates a very profitable golden cross signal after the 50-day moving average ( MA 50 ) crossed above the 200-day moving average ( MA 200 ) on the EUUSD 15-minute chart on June 15. october. From there there was an almost continuous upward movement that produced a gain of around 500 pips.
https://preview.redd.it/s4h7cbltnxe91.png?width=1004&format=png&auto=webp&s=b4fb763001804299c78423829c9f9d742141ccbf
The golden cross strategy by itself can be quite profitable, but like any strategy based on moving average crossovers, it can generate false signals that can cause heavy losses if the trader is not careful.
However, there is a way to improve the standard model and the strategy, and the aim of this article is to present a way to optimize the golden cross to obtain more reliable signals.
The Enhanced Golden Cross strategy uses an indicator to filter out the biggest losing trades, making the strategy more profitable overall, even though the number of trades is smaller.
The Enhanced Golden Cross essentially looks at how moving averages cross and only allows certain types of crosses to open a market order. This is because it has been found that the strongest golden cross signals tend to come from moving average crossovers where the rate of change (ROC) of the moving averages is similar.
For example, in the graph below two different crossings are indicated by circles. The first crossover on the left shows a 50 MA crossing through a 200 MA that is mostly flat and trendless.
This is one of the types of crossovers where the difference between these two moving averages from the point of view of their rate of change is very different – because the almost flat 200 MA is not changing very quickly, while the 50 MA is changing more quickly.
This type of crossover is usually characteristic of less successful signals.
https://preview.redd.it/dzqot9junxe91.png?width=1004&format=png&auto=webp&s=d9e7995cde78ae162974ae05c7b4654e472ed276
The second type of crossover is illustrated by the moving average crossover on the right side of the chart where another circle has been drawn. At this crossover the moving averages are much closer and more grouped at the crossover.
In this type of crossover the exchange rates of the two moving averages are more similar when they cross and therefore these types of crossovers tend to produce more reliable signals with stronger bullish/bearish movements, with more profitable results.
The chart also includes a custom indicator for Metatrader that was designed to give confirmation signals for moving average crossovers.
We can see how the indicator peaks at the first crossover on the left, but is close to zero for the most successful signal on the right. The indicator is called MAROC and is built by comparing the rate of change (ROC) of the fastest moving average with the rate of change of the slowest moving average, with a 3-period adjustment.
The result is plotted below as a gauge around a zero line. For this strategy only the golden crosses that occur with the MA ROC indicator reading below 0.065 pass the criteria for opening long positions.
This strategy seems to work very well when it comes to optimizing the selection of the signals produced by the golden cross, in such a way that the system is now more reliable, although the number of signals is smaller thanks to the filter.
This seems to indicate that the enhanced Golden Cross system can identify the most reliable moving average crossovers in whatever currency pair it is used on, improving a trader's chances of successful trading.
You can download the MA ROC indicator at the following link:
- MA ROC Custom Indicator For MT4
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