I would like to start a series of articles in understanding about classical technical analysis indicators. First we are starting with simple 200EMA trading system where one will enter long if the candle closes above 200EMA and enter short if the candle closes below 200EMA.
How to understand the nature of 200EMA?
1)Backtest the trading system across multiple timeframes like 1min, 5min, 7min, 15min, 30min,Hourly and Daily Timeframe
2)Brokerages are not included in the result. Just a plain backtesting without including the Brokerages and Slippages
3)Used Amibroker for Backtesting the Simple 200EMA trading system with the backtesting period of 4 years.
Here are the backtest results obtained across different timeframes
What is the Inference?
1)Winning Ratio of the Trading system ranges between 15-26% across different timeframes
2)Consecutive losses are huge in lower timeframe which makes difficult to trade as human emotions doesn’t allow to take more than 20+ consecutive trades mentally.
3)Profits are higher in lower timeframe compared to higher timeframes. And 1min,5min could not be profitable after taking brokerage plus slippages into account.
4)15min and 30min are the ideal timeframe to trade such strategies however one should aware about the risk involved in the trading system and what kind of winning ratio he can expect from the trading system.
5)200EMA strategy is not profitable in Daily Timeframe and the Winning ratio is lowest when compared to other timeframes.
Is this Trading system Recommended?
Though this trading system is profitable in lower timeframes like 15min,30min after deducting brokerage, however it is not advised to trade such system due to too much of consecutive losses in trading system. And the risk involved in such trading system is very huge.