Here's a method you guys might be interested in. It has made me money in real time, but I need to test it to make sure it's not some fleeting B.S.

The work is based on Tom Demark's "The New Science of Technical Analysis", however it is not applied in the manner he presents it. This is an entirely new idea. Shifted MAs have been around a long time, but here's my take on it.

When we observe past price action, we generally tend to assume the obvious, that is, if the fast MA is above the slow MA the trend is long. This is not necessarily correct, and in many cases, is counterintuitive. The point is that we can play a zero-sum game with moving average cross system users that exploits the weaknesses of their systems.

Fast/slow moving average systems tend to lose money. They are generally on the wrong side of the market, at least in the short-term. The reason is that slow traders like import/export companies and multi-national corporations use these simple methods for hedging in the long-term. The swing trader will generally be on the wrong side when applying these methods to shorter-term analysis.

Instead of Fibonacci, I have found that GBP/USD tends to follow a one third, two thirds cycle. In other words, It will lose 1/3 as it advances 2/3, in a long term uptrend. I chose a 90 EMA, or base period, unshifted, and a 30 EMA shifted 20 periods, or 2/3, for these tests.

I'm talking about methods that succeed over years on the long term charts that fail on a daily or 4 hour chart. I'm making them work on shorter charts. Be forewarned, these settings probably won't work in the future, I'm working on ways of finding optimal settings dynamically. Read Demark, Chapter 6, and he sets up this idea. Here's my take:

1. We use a longer period exponential moving average, somewhere between 80 and 90 on a 4 hour chart, and a shorter period, around 15-25. We only shift the second MA, but shift it at a value almost its own value, within a range.

2. I am not fixated on fibonacci numbers, if I was I'd be broke by now. We shift by whatever number is recently optimal.

3. We buy when the slow MA crosses above the fast MA.

4. We sell when the slow MA crosses below the fast MA.

5. Read #3 and #4 again.

6. Look at the results on Cable backtesting...

Please help to test and optimize this, it's really promising...

Attached Files

gbpusd.pdf (81.1 KB, 256 views)

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