The Triple Moving Average Crossover System
Trend following is on a comeback. Most of the more popular trend following algorithms have shown positive performance for the past three months. I wanted to take a look at the TMA because I like how it trades in the direction of the overall long term trend but can get out quick if the market has a reversal. The Double Crossover system is usually a stop and reversal.
Here’s how the system works: Go long if the short term average crosses from below the mid term average if and only if the mid term average is greater than the long term average. In some cases the short term will cross the mid term but both will be below the long term average. When this happens you will stay neutral until the mid term average crosses from below the long term average. Even when this happens the short term must still be greater than the mid term (this is usually the case though). Selling short is simply the opposite.
You exit long positions when the short term averages crosses from above the mid term average. You don’t need to look at the long term average as it plays not part in the liquidation signal. Shorts are liquidated when the short term averages crosses from below the mid term.