Twisted SMA Adaptive Crossover Long Line Strategy

Overview

This strategy generates long-term entry signals by combining 3 simple moving averages (SMA) of different periods with the Kaufman adaptive moving average. It produces buy signals when the shorter period SMA crosses over the longer period SMAs. In addition, the strategy also incorporates candlestick color to determine the main trend, generating buy signals only during uptrends to avoid false breakouts.

Strategy Logic

The strategy utilizes 3 SMAs of different periods, including SMA 4, SMA 9, and SMA 18. The crossover combinations of these 3 SMAs are classic indicators for judging trend direction. When SMA 4 crosses over SMA 9, and SMA 9 crosses over SMA 18, it produces long entry signals.

To filter out false breakouts, the Kaufman adaptive moving average is also introduced. Only when the close price is higher than the adaptive moving average, i.e. in an uptrend, will the SMA golden cross signals take effect to trigger long positions.

In addition, a 100-period SMA is used to determine the main trend. When prices cross above the 100-period SMA, it confirms that an uptrend has begun. The strategy only produces buy signals during main uptrends.

In summary, the long entry signals of this strategy come from the combination of:

1. SMA 4 crosses over SMA 9, and SMA 9 crosses over SMA 18, forming short-term SMA golden crosses

2. Close price is higher than the Kaufman adaptive moving average, in an uptrend

3. Prices cross above the 100-period SMA, confirming a main uptrend

When all 3 conditions are met at the same time, long entry signals are generated.

Advantage Analysis

The main advantages of this strategy include:

1. Using triple SMA crosses to determine trends can effectively filter out noise and increase signal reliability

2. Introducing adaptive moving average avoids false breakouts when there is no clear trend

3. Incorporating main trend judgment increases profit probability by avoiding repeatedly opening positions during range-bound movements

4. Long-term and short-term SMA crosses form long line signals, which captures big trending moves

5. Suitable for high periodicity timing such as 4-hour or daily levels, with more reliable signals

Risk Analysis

There are also some risks with this strategy:

1. As a long-line strategy, unable to realize profits in a timely manner, with certain drawdown risks

2. Relatively few entry signals, may miss some run-ups

3. Conflicting short-term, medium-term and long-term trends may generate erroneous signals

The following optimization methods can be adopted:

1. Appropriately reduce medium and long term SMA periods to increase entry opportunities

2. Add other auxiliary indicators like volume to confirm trend reliability

3. Employ prudent stops to reasonably control drawdowns

Optimization Directions

There is further room for optimizing this strategy:

1. Test more SMA combination periods to find optimum parameters

2. Incorporate volume confirmation to avoid false breakouts

3. Add volatility indicators to filter entries during violent swings

4. Introduce machine learning algorithms to adaptively identify optimal parameters

5. Add sentiment indicators to avoid taking positions during market panic or euphoria

Conclusion

This strategy forms long-line signals through multiple SMA crosses, combined with adaptive moving averages and main trend determinations. It can capture significant profits during trending moves with stable logic and strong practical results. But there are also risks that need to be reduced through further optimizations. As a long-term position holding strategy, it suits investors with patience and risk control capabilities.