Triple Moving Average Crossover System

Overview

The Triple Moving Average Crossover System is a typical trend-following stock trading strategy. It uses the crossover of three moving averages of different time lengths as buy and sell signals. When the short period moving average crosses above the medium period moving average, and the medium period moving average crosses above the long period moving average, a buy signal is generated. When the short period moving average crosses below the medium period moving average, and the medium period moving average crosses below the long period moving average, a sell signal is generated.

Strategy Logic

The strategy is based on three moving averages: the long period moving average ma1, the medium period moving average ma2 and the short period moving average ma3. First it calculates these three lines:

length1 = input(18,'长线')  
length2 = input(9,'中线')
length3 = input(4,'短线')

ma1 := sma(close,length1)
ma2 := sma(close,length2) 
ma3 := sma(close,length3)

Where length1, length2 and length3 define the time lengths of the three moving averages. The sma function calculates the simple moving average of the close price over the corresponding length.

It then uses the crossover of the three moving averages to determine entries and exits:

if ma2 > ma1 and ma3 > ma3[1]
    strategy.entry("Long", strategy.long)

if ma2 < ma1 and ma3 < ma3[1] 
    strategy.entry("Short", strategy.short)

When the medium term ma2 crosses above the long term ma1, and the short term ma3 crosses above the previous period’s ma3, a long signal is triggered. When the medium term ma2 crosses below the long term ma1, and the short term ma3 crosses below the previous period’s ma3, a short signal is triggered.

Advantages of the Strategy

• Using three moving averages can clearly identify trend changes.
• The combination of long and short periods filters out some short term market noise and locks in longer term trends.
• Simple rules make it easy to implement.
• Parameters can be adjusted to adapt to different market environments.

Risks of the Strategy

• Entries and exits are identified in hindsight and cannot completely avoid losses.
• Whipsaws occur when the price oscillates around moving averages.
• Long period line that is too long may miss trend turning points. Short period line that is too short may trigger frequent trades due to noise.
• Does not handle ranging markets very well.

These risks can be reduced through appropriate parameter optimization, adding filters with other indicators etc.

Improvement Directions

• Backtest different parameter combinations to find optimal values.
• Add stop loss to control losses.
• Add other indicators to judge momentum and divergence to avoid false signals. E.g. MACD, KD etc.
• Choose suitable profit taking strategy according to actual situation.

Summary

The Triple Moving Average Crossover strategy is a simple and practical trend following strategy. It identifies changes in trend direction based on the crossover of three moving averages to generate trading signals. The advantages of this strategy are its simple rules and effective tracking of trends, making it suitable for medium to long term trading. However, there are also risks of false signals and drawdowns. The strategy can be improved by optimizing parameters, adding supporting indicators etc. to adapt to different market environments. Overall, the Triple Moving Average Crossover is a foundational algorithmic trading strategy that provides a good starting point for learning quantitative trading.