Forex Moving Average Cross Trade

Entry Logic

• Entry triggers when a faster moving average (e.g., 20 EMA) crosses above or below a slower moving average (e.g., 50 EMA).
• Confirmation requires a candle to close above both moving averages for a long, or below both for a short.
• Timeframe is the 1-hour chart.
• Location is a change in the short-term trend.
• Market condition is the beginning of a new trend.

Exit Logic

• Profit target is a 2:1 risk-reward ratio.
• No scaling out.
• Trailing stop is the slower moving average.
• Exit on signal failure if the moving averages cross back in the opposite direction.
• Exit on an opposite signal from a new moving average cross in the opposite direction.
• No time expiration.
• Exit on momentum loss if the price consolidates for a long period.

Stop Loss Structure

• Hard stop is placed below the low of the candle that confirmed the cross for a long, or above the high for a short.
• No soft stop is used.
• Maximum dollar loss is 1% of account equity.
• Maximum percent loss is 1% of account equity.
• Structural stop is placed below the slower moving average.

Risk Management Framework

• Risk per trade is 0.5% of the account.
• Maximum daily loss limit is 1.5% of the account.
• Maximum weekly loss limit is 4% of the account.
• Maximum drawdown allowed is 12%.
• Risk-reward ratio requirement is a minimum of 1:2.

Position Sizing Model

• Sizing is based on a fixed fractional model (0.5% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading in ranging markets, as moving average crosses can generate many false signals.
• Requires a clear trend to be developing.
• Instrument can be any major forex pair.
• Can be traded at any time.
• Avoid trading when the moving averages are flat and close together.

Context Framework

• Trend direction is determined by the direction of the moving average cross.
• Price should be on the correct side of both moving averages.
• The slope of the moving averages should be steep.
• Location is a change in the short-term trend.
• Higher timeframe (daily) should be in a similar trend or a consolidation phase.

Trade Management Rules

• This is a trend-following strategy.
• Let the trailing stop manage the trade.
• Do not add to the position.
• Be patient and let the trend develop.

Time Rules

• This strategy can be used on any timeframe, but the 1-hour chart is a good starting point.
• The optimal time to trade is when a new trend is emerging.
• No session-specific notes.

Setup Classification

• A+ setup: Moving average cross in the direction of the daily trend with a steep slope.
• A setup: Moving average cross with a moderate slope.
• B setup: Moving average cross in a ranging market.
• C setup: Trading against the moving average cross.

Market Selection Criteria

• Instrument can be any major forex pair.
• Requires a trending market.
• Volatility should be moderate to high.

Statistical Edge Metrics

• Expected win rate is 35%.
• Average win is 4R.
• Average loss is 1R.
• Profit factor is 1.4.
• Expectancy per trade is +0.2R.

Failure Conditions

• Strategy fails in ranging markets.
• Avoid trading when the moving averages are whipsawing back and forth.

Psychological Rules

• Be disciplined to follow the trend and not exit too early.
• Be prepared for a lower win rate but larger winning trades.

Advanced Components

• The moving average cross is the key advanced component.
• A trend filter (e.g., ADX) can be used to avoid ranging markets.
• Multi-timeframe alignment with the daily chart is helpful.

Location

• Strongest at the beginning of a new trend.
• Weakest in a ranging market.
• The market condition is the most important factor.