Moving averages :
The trading system that we describe here is a system based on moving averages.
Many funds in systematic trading use this kind of model. It is specially used in commodities, interest rates, currencies such as crude oil, natural gas, gold, copper, bund, bobl, eurocurrency etc…
Trends in these markets can last a very long time and this kind of trading systems manage to capture a good part of the trend.
This trading system that we call “SUNSET” uses a moving average to which we add a band. This band is displaced from its moving average by +/- an average of the last n true range.
This band is used as a filter to avoid taking many false signals based on the moving average breakout.
The rules of this trading system are simple : a long position is initiated at the break of the upper band with a stop loss / trailing stop which is placed at the level of the lower band. The rules are symmetrical with a short position.
The (non optimized) parameters used for this trading system are a 35-day moving average, +/- 2 times the average true range of the last 15 days.
See below a BUND chart with an entry and exit point.
Code for this system (easy language format) :
Inputs : TrendLength(35), Ecartement(2);
Variables: hb(0), lb(0);
Buy next bar at hb stop;
Sell short next bar at lb stop;