Moving Average Alignment with an ADX Filter for Trend Trading

Summary

This trend-following strategy defines an uptrend as five simple moving averages, spanning 10 to 200 periods, arranged from shortest and highest to longest and lowest. A downtrend uses the reverse ordering. The author treats this alignment as evidence that price momentum favors the prevailing trend and describes the averages as potential support levels. An ADX filter is added: it must be above 20 and rising. Entry is delayed until five candles after the alignment forms, and the position is exited if the ordering breaks.

The document reports a historical EUR/USD hourly test over a period in 2008–2009, with 66 trades and positive net profit, alongside drawdown and win-rate figures. These results are limited evidence: the test covers one currency pair and a short historical window, and its reported modelling quality is 44.19%. It gives no out-of-sample validation, transaction-cost analysis, or comparison against a benchmark, so the figures do not establish that the method will generalize.

Key ideas

• An uptrend is defined by five simple moving averages in descending period and price order, with the reverse arrangement defining a downtrend.
• The strategy adds an ADX filter requiring a reading above 20 that is increasing.
• Entry occurs five candles after the alignment forms, while a violation of the ordering triggers exit.
• The reported EUR/USD hourly test is limited by its single-market scope, short period, and stated modelling quality.

Tags

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