Reducing Moving Average Crossover Lag with Open and Close Prices

Summary

The article proposes a crossover signal that uses moving averages of the same period applied separately to open and close prices. When the open-based average exceeds the close-based average, the method treats that relationship as bearish; the reverse is bullish. This removes the conventional fast-versus-slow period gap and is presented as a way to reduce lag. The author notes that the same idea could be adapted to indicators such as RSI by calculating them on different price fields.

A comparison on daily EURUSD data from 2020 through late 2024 uses a traditional crossover as a benchmark. The reported modified system raises the Sharpe ratio from 0.18 to 0.5 and lowers the share of losing trades from 60.98% to 52.38%, while average profit per trade falls from $29.35 to $22.81. These are results from one instrument and sample period; the article also notes the familiar difficulty of crossover systems in ranging markets and the need for parameter choices and further evaluation.

Key ideas

• The proposed signal compares same-period moving averages calculated from open and close prices.
• The relative position of the two averages is interpreted as a directional signal based on how bars finish relative to their opens.
• The EURUSD daily backtest reports a higher Sharpe ratio and fewer losing trades than the traditional benchmark.
• Average profit per trade declined in the modified system, illustrating a trade-off in the reported results.
• The evidence covers one pair and one historical period, and crossover signals can struggle in ranging conditions.

Tags

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