Triple EMA Momentum Strategy

Overview

This strategy is modified from SoftKill21’s Amazing scalper for majors with risk management by using triple exponential moving averages instead of simple moving averages to reduce lag. It is suitable for major currency pairs at 1-minute timeframe, adopting trend following approach based on golden cross and death cross of fast EMA, standard EMA and slow EMA. It also incorporates London and New York sessions and risk management principles to determine position sizing.

Strategy Logic

The strategy uses three EMAs with different periods: 25-period fast EMA, 50-period standard EMA and 100-period slow EMA. When fast EMA crosses over standard EMA and slow EMA, it generates buy signal. When fast EMA crosses below standard EMA and slow EMA, it generates sell signal. To reduce lag, EMAs are calculated using double exponential smoothing technique. The strategy also checks if open market times of London or New York sessions match the entry conditions. In addition, position sizing of each order is determined dynamically by using a fixed percentage of account equity to control risk.

Specifically, the strategy first calculates the three EMA lines, then checks if fast EMA forms golden cross or death cross with standard EMA and slow EMA. If the condition also matches London or New York open market times, buy or sell signals are generated. When determining position size, the strategy calculates fixed percentage of account equity as risk exposure, then converts it to contract size and round lots to adjust position dynamically for each order.

Advantage Analysis

The strategy has the following advantages:

1. The triple EMAs can effectively smooth price data and identify trend direction. Fast EMA is sensitive to price changes, standard EMA steadily tracks, and slow EMA filters noise. Used together, they can filter false breakouts and determine trend direction.

2. The use of double exponential smoothing reduces lag and makes signals more sensitive.

3. Incorporating major trading sessions avoids misleading signals during off-peak hours.

4. The risk management approach adjusts position size based on account equity, avoiding excessive loss on single trades.

5. The logic is simple and clear, easy to understand and implement, suitable for beginners.

6. The strategy can be optimized and adjusted for different currency pairs and timeframes, with wide applicability.

Risk Analysis

The strategy also has some potential risks:

1. EMAs cannot effectively filter short-term false breakouts caused by sudden events, which may generate wrong signals. Other indicators may be added to filter and analyze.

2. Fixed percentage position sizing cannot dynamically adjust to market volatility, leading to over- or under-sized positions. Dynamic position sizing based on volatility can be considered.

3. Only two major sessions are considered, which may miss trading opportunities in other sessions. Effects of different sessions can be tested.

4. Lack of stop loss mechanism results in inability to effectively control one-sided loss. Moving or time-based stop loss can be implemented.

5. EMA crossovers have some lag and may miss best entry timing. Reducing EMA periods or incorporating leading indicators can help.

6. Performance may be affected by transaction costs. Stop loss and take profit levels should be adjusted accordingly.

Optimization Directions

The strategy can be optimized in the following aspects:

1. Test different EMA period parameters to find optimal combinations. Adaptive EMAs can be introduced to dynamically optimize periods.

2. Add other filtering indicators like RSI, Bollinger Bands to improve signal quality.

3. Introduce dynamic position sizing based on market volatility and profitability.

4. Add moving or time stop loss to limit losses. Fine tune stop loss levels.

5. Test different trading sessions to find the optimal times. Volatility measures can help screening.

6. Optimize take profit and stop loss levels to balance profit size and win rate. Introduce intelligent stops like parabolic SAR.

7. Try modifying EMA calculation like linear weighted EMA to reduce lag.

8. Employ machine learning to find optimal parameters.

9. Model transaction costs and adjust system for maximum net profit.

Through the above optimizations, the system’s profitability can be improved, drawdowns controlled, applicability expanded, to obtain a more powerful and robust trading strategy.

Summary

The overall logic of this strategy is clear, using triple EMAs to identify trends, combining with major sessions for execution, and adopting position sizing based on account percentage. It belongs to a typical trend following system. There is large room for optimization via parameter tuning, mechanism improvements, technology introduction etc. to further expand its applicability across more markets and improve robustness. As a learning 웽e for beginners, it provides a good starting point. With practice and enhancements, it can transform into a mature and reliable quantitative strategy.