TRIPLE MOVING AVERAGE

Another common moving average system is the 4/9/18 Triple Moving Average. Like the dual moving average system, the triple is also mentioned and tested in Way of the Turtle, Technical Traders Guide to Computer Analysis of the Futures Market and The Dow Jones-Irwin Guide To Trading Systems. The use of the 3rd moving average line adds a neutral zone to this system so it isn't always in the market however the 3rd line can be used in various ways.

ENTRY

With 3 moving average lines you use 2 of them as the crossover entry trigger and use the 3rd line as a trend filter. With the 4/9/18 numbers, you can use the cross of the 9 and 18 lines but only take positions on the side of the 4 day line. You can alternately take the cross of the 4 and 9 moving average lines but only take positions on the side of the 18 day line. For example, if the 4 day crosses above the 9 day and both are above the 18 day moving average, long positions can be taken. If the 4 day crosses below the 9 day and both are below the 18 day moving average, short positions can be taken. Using the 4 day as a short term indicator can reduce whipsaws while using the 18 day as the trend filter attempts to capture the longer term trend indication.

POSITION SIZING

Using the stop, we calculate the position size based on how much we would lose if the position is stopped out. We want to keep all of our positions and risk equal across all the markets we trade so we'll use the Percent Volatility calculation. We take the amount we want to risk (our capital * the percentage to be risked) and divide it by the money value of the distance from the entry to the stop. This gives us our position size. An example is a $25,000 account size and 1% risk per trade for a position risk of $250. If the distance from our entry to our stop is $34.82, we would finish the calculation with $250 รท $34.82 and round down for a position size of 7 shares.

STOP

Working with the position size calculation we use a multiple of the ATR. Using an example of a $565.25 entry on AAPL stock and 2 * a 15 day ATR of 17.41, our stop would be $34.82 to each side of the $565.25 entry price. A long position would be stopped out if the price dropped to $530.43 and a short position would be stopped out if the price rose to $600.07.

EXIT

This system takes profits when the fastest line crosses the middle line to the opposite side from where the entry occured. Continuing with the 4/9/18 moving average lines, a long position would exit when the 4 day line crosses below the 9 day moving average. A short position would exit when the 4 day line crosses above the 9 day moving average.

VARIATIONS

With 3 moving average lines there are many variables to test and find the combination that best works for you. Curtis Faith's book uses much longer term variables than the 4/9/18 lines however we have also seen combinations of 5/15/30 and 4/21/63 as examples. Another variation in testing this system is to try the differences between simple moving averages, exponential moving averages, weighted moving averages, and displaced moving averages.

MORE DETAILS

You can find this system in the three books mentioned above with testing results and comparing it to other systems. Way of the Turtle uses it as a long term system with 150 day, 250 day and 350 day lines. Technical Traders Guide to Computer Analysis of the Futures Market and The Dow Jones-Irwin Guide To Trading Systems use it with the 4 day, 9 day and 18 day lines.

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