Compounding Long-Short Strategy Using SMA Crossovers
Summary
This document describes a trend-following system that enters long when a fast simple moving average crosses above a slower one and short when it crosses below. The example uses 9- and 21-period averages. It sizes positions using starting capital plus cumulative profit, converting that value into quantity relative to the current price, so exposure grows or shrinks with the account.
The document explains the intended benefits and risks of this approach, including trend participation, sensitivity to moving-average choices, whipsaws and trading costs during choppy periods, and larger drawdowns when compounding follows losses. It suggests parameter testing, trend filters, stops, and position-risk limits as possible refinements. The published example is a short BTC-USDT futures backtest configuration, but no performance results are supplied. The code also initializes capital to a fixed amount and updates cumulative profit only while trades are open, details that may affect how its sizing rule behaves in practice; the description should therefore be treated as a strategy outline rather than evidence of profitability.
Key ideas
- A fast SMA crossing above or below a slow SMA triggers long or short positioning.
- The example scales position quantity using starting capital and cumulative profit relative to price.
- Frequent crossovers in sideways markets can increase losses, transaction costs, and slippage.
- Compounding can magnify drawdowns as well as gains.
- The document proposes risk controls and parameter testing but provides no reported performance results.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.