This system is based on the classic Golden Cross. The Golden Cross occurs when a short-term moving average crosses over the long-term moving average. I am really just curious: is the Golden Cross a valid entry signal?
Phase 1: Plan & Design
1. Trading Idea
The big idea is to use the Golden Cross for entry, with an initial Average True Range (ATR)-based hard stop and a 20 period low trailing stop. We will use 200 period simple moving average (SMA) (long-term) and 50 period SMA (short-term). When the 50 period line crosses above the 200 period line, we go long/buy.
This system goes long only and is focused on equities only due to its use in the stock markets, though it should not preclude its usage for other market groups.
2. System Definition
Initial Capital: $100,000
- Futures: 1 contract
- ETF: 10,000 / price
- Equities: 3.33% of $100,000 per stock = $3,333.33
- Enter next bar at market (open), when 50 period SMA crosses over 200 period SMA
- Reentry if stopped:
- Low > 50 period SMA for five consecutive bars
- 50 period SMA > 200 period SMA
- Initial Hard Stop: Entry price minus 1 ATR
- When 20 period low > Initial Hard Stop, set stop to 20 period Low
Exit: Exit when the stop is hit.
Profit Target: None
3. Performance Objectives
The strategy will meet the following objectives:
|Strategy Type (trend, mean-reversion, day, swing, etc.)||Trend|
|Risk of ruin||0%|
|Profit Factor||> 1.5|
|Win Percent||> 30%|
|Max Drawdown %||< 35%|
|Profit/Drawdown Ratio||> 2.0|
This idea is S.M.A.R.T.: Specific, Measurable, Achievable, Realistic, Time-bound
4. Market Selection
|Name||Symbol||Exchange / Broker||Comments|
|Dow E-Mini $5||YM||TS||Use $2.50 for commission, $10 for slippage and contract rollover|
|SPDR Dow Jones Industrial Average ETF||DIA||TS||No commission, .01 for slippage|
Note: My brokerage charges no commission
|TS||No commission, .01 for slippage|
I am selecting the Dow Industrials 30 components so that I can compare and contrast a basket of stocks against a Dow-based ETF and the Dow E-Mini. I am aware of changes in the Dow throughout time.
Chart Type, Timeframe, Session, Time Zone:
|Chart Type||Regular Candlestick||Charting is only useful for validating entry and exit signals|
|Timeframe / Interval(s)||5 min, |
|Trying three different timeframes|
Phase 2: Build
5. Manual Test
Initial walk-through of two years of DIA looks like it can work. I needed to add a re-entry rule, so I used a variation of the ‘re-initiation’ rule that 40in20out uses.
During build, I found that I needed to do something if we started our system in the middle of a long upward trend. The SystemStart variable is set to 1 at the beginning (Once) and will be set to 0 (zero) once our first entry occurs.
7. Unit Test
Phase 3: Test
No optimization required for this system.
9. Walk-Forward Analysis
Dow 30 Stocks 20 years: FAIL
- Profit Factor: 1.22
- 22.54% win rate
Dow e-mini, 20 years: PASS
- Profit Factor: 1.68
- 30.51% win rate
DIA ETF, 20 years: FAIL
- Profit Factor 1.43
- 28.03% win rate
60 minute and 5 minute did not pass YM, so I skipped testing on DIA and the individual Dow 30 stocks.
10. Monte Carlo Simulation
Did not make it this far
Phase 4: Deploy
Did not make it this far
If YM futures worked okay, maybe we can consider ES, NQ and RTY. Monte Carlo bombed, so it might not be worth going further with this.
Maybe Golden Cross is good for a trend filter, but definitely not for a trading signal by itself.
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