Ok, let’s find out which is the best moving average for Intraday trading. Here’s the example of Yes Bank.
For testing purpose, I simply taken the following condition
- Buy if Close>20 Moving average
- Short if close<20 moving average
The green arrow in the above chart shows Buy Signal and Red arrow shows sell signal.
Now simply run a optimization to find out which would be best moving average between 10 to 100, in few seconds Amibroker charting tool can give me results.
The result shows that 35 is the best Moving average, giving the highest intraday profits for Yes Bank for the period Jan 2016 to Dec 2016.
You are happy that you are able to figure out the best MA and decided to trade with 35 moving average parameter.
Let’s find out what was the result for 2017 with the same parameter. You can see from the below table, for the year 2017, 75 was the best moving average giving highest profits, where as 35 was at the bottom.
The best moving average that you tested for the year 2016 was the worst moving average for the year 2017.
This is the worst mistake every beginners make, they always tend to look for that one best thing in Trading. No, it never works. Optimization is an illusion. You cannot simply trade with moving average in intraday, moving average system always tends to provide whipsaws, the best moving average keeps changing, its not a constant one, as the volatility of the stock keeps changing.
Focus only on the price, ignore all indicators. I have tested numerous indicator based setups, none of them works as good as price action. Simple Trading system will last longer. Many traders use RSI, ADX, MACD, Bollinger and all kinds of indicators, when you use multiple parameters and when something goes wrong, you cannot tell which one is the culprit, reduce the parameters, keep it minimal and keep it simple, it works.