Moving Averages: Trend Filter and Crossover Systems

SMA, EMA or LWMA: which moving average?

A moving average is a follower, not a leader: it always reacts with lag and never forecasts, but its signals are unambiguous. The three types differ only in weighting.

• SMA weights all days in the window equally
• LWMA weights more recent prices linearly more heavily
• EMA weights recent prices more, includes all data, and reacts faster
• Crypto standard: 9, 21, 50 and 200 EMA

Triple crossover 4-9-18: scaling in and out in stages

The double crossover has only one signal and no room for position management. The triple crossover solves this with staggered alerts, so you open a partial position on the alert and add on confirmation.

• Alignment in an uptrend: 4 above 9 above 18
• Buying alert: the 4 crosses above the 9 and the 18
• Confirmed buy signal: the 9 crosses above the 18
• Crypto equivalent: 9, 21, 50 EMA or the faster 8, 13, 21

The regime filter: telling range from trend

The honest limit of every moving average is the sideways phase. Murphy estimates that markets are stuck in a range a third to half of the time, where crossovers only produce whipsaws and leverage plus funding add up the small losses.

A regime filter first clarifies whether a trend is present. A low ADX shows a directionless market where standing aside is profitable. On the demo exchange you quickly see how often an EMA lays the same false trail in a range.

• A shorter average: earlier signals, but more trades and whipsaws
• Kaufman's AMA turns slow in ranges and fast in trends
• When the EMA is rising, only go long and buy pullbacks into the value zone