Dual EMA Trend Following with Fixed 3:1 Risk-Reward Levels

Summary

This document describes a long-only trend-following system using the 20-day and 200-day exponential moving averages. It enters when price rises above the faster average while that average is above the slower one, and tracks trade status so it does not repeatedly enter during the same move. The stated exit levels are a 0.5% stop loss and a 1.5% take profit, giving a fixed 3:1 reward-to-risk ratio. A close below the 20-day average resets the entry state.

The material explains the intended role of the averages and suggests volume, volatility-based exits, trend-strength filters, sentiment, and position management as possible refinements. It provides BTC/USDT Binance futures daily backtest settings spanning late 2019 to late 2024, but reports no performance statistics or results. The rules may produce false signals in sideways markets, and fixed exit distances may be poorly suited to changing volatility. Transaction costs and liquidity are not modeled, so the stated risk-reward levels alone do not establish profitability.

Key ideas

• The strategy enters long when price crosses above the 20-day EMA while it is above the 200-day EMA.
• Each trade uses a fixed 0.5% stop and 1.5% target, a stated 3:1 reward-to-risk ratio.
• A close below the faster EMA resets the entry flag for a later trade.
• Sideways markets, volatility shifts, transaction costs, and liquidity may weaken results.
• The document gives a backtest period and market but no performance data.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.