V.7:6 (185-187): Simple moving average crossover by Peter Aan

V.7:6 (185-187): Simple moving average crossover by Peter Aan
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Simple moving average crossover by Peter Aan

Editor's note:In this issue, Peter Aan reports on the first of his tests of different trading systems. He begins with probably the most widely known trading system.

General Description:

Trend following, always in the market.

Originator: Unknown

Rules and Formulas: The moving average crossover method calculates two moving averages, each based on a different number of days of trading data (Figure 1).

When the shorter-term (fewer days) average crosses above the longer-term average from below, this is a buy signal for tomorrow's open. When the shorter-term average crosses below the longer-term average from above, this is a sell signal for tomorrow's open.

To compute a simple moving average (MA) of the closes, take the sum of the closes for the most recent "n" number of days and divide by "n." For example, a 3-day MA is calculated in the following manner:


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