Moving-average crossover

Currencies tend to trend for weeks or months when interest-rate expectations shift. A moving-average crossover tries to catch those trends without predicting them: it waits until a short-term average of the price crosses a longer-term one, then follows the new direction until the averages cross back.

The rules

• Calculate a fast average (20 days) and a slow average (50 days) of the daily closing rate.
• When the fast average closes above the slow one, buy the pair. When it closes below, sell it.
• Always in the market: each crossover closes the current position and opens the opposite one.

Test it on real history

What the numbers usually show

Trend-following tends to have a low win rate, often under 40 percent, with a handful of large winners paying for many small losses. In quiet, sideways years the strategy gets whipsawed: price crosses back and forth and every signal loses a little. Try a range-bound pair such as EUR/GBP and compare it with a trending period on USD/JPY to see the difference.

Longer averages trade less often and suffer fewer whipsaws, but they enter late and give back more of each move before exiting. There is no setting that wins in every market, which is why traders combine trend signals with filters such as volatility or a higher-timeframe trend.