Filtering SMA Crossover Trades with Trend Efficiency

Summary

This strategy combines a moving-average direction filter with a measure of how directly price has moved over a lookback window. Trend efficiency is the absolute net price change divided by the sum of absolute bar-to-bar changes. A higher score means price covered more net distance with less back-and-forth movement; the strategy takes long or short trades only when the fast and slow exponential moving averages indicate the corresponding direction and efficiency exceeds a configurable threshold.

Exits use an average true range stop and a target set at a multiple of the stop distance. The script plots both moving averages and the efficiency score, and its defaults specify the lookback, threshold, ATR period, stop multiplier, and reward-to-risk setting. The accompanying description presents the system as a research framework for comparing markets and timeframes. It provides no backtest results or comparative evidence that the filter improves returns. Transaction costs, position sizing beyond the stated equity-percentage default, and robustness across market regimes are not analyzed; independent testing is advised.

Key ideas

• Trend efficiency divides net price movement by the total absolute movement over a lookback window.
• The strategy enters in the direction indicated by the fast and slow exponential moving averages when efficiency clears a threshold.
• ATR determines the stop distance, while a configurable reward-to-risk multiple sets the target.
• The script is offered as a way to study trend quality across markets and timeframes.
• The document reports no backtest evidence establishing profitability or robustness.

Tags

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