This research strategy is inspired by the well-known ‘Golden Cross’, however, we tailored it to fit the USDCAD pair and added some additional money management rules.
Features
The Canadian Cross Strategy uses a combination of four moving average indicators to generate trading signals. Once a trading signal is generated, the strategy then automatically places a buy or sell order depending on the type of signal that was generated.
Indicator Description
The strategy concentrates on two types of moving averages; the exponential moving average (EMA) and the smoothed moving average. It uses two exponential moving averages and two smoothed moving averages. The difference between them is the period.
Exponential Moving Average Indicator: This is a type of moving average indicator which is more advanced than the Simple Moving Average Indicator (SMA). The EMA gives more weight to the most recent prices making the indicator more accurate in predicting price trends. The formula used looks like this:
Smoothed Moving Average Indicator: This indicator uses the same principles as the Exponential Moving Average Indicator but with larger periods. A normal simple moving Average Indicator just gets the averages of the prices of the most recent bars or candlesticks over a given period of time. The Exponential Moving Average(EMA) formula is:
Where the smoothing is: [2 ÷ (selected time period + 1)]
A strategy like Canadian Cross is more likely to be successful when the market is in a strong bullish or bearish trend. When the market is in consolidation, the strategy is not likely to be profitable.
Entry & Exit
The Canadian Cross Strategy signals are generated when the four moving average indicators cross each other. Since the smoothed moving averages use larger periods, they are not susceptible to market volatility as the exponential moving averages.
Therefore, the exponential moving averages change trends faster than the smoothed moving averages and this is what results into the crossing. When the smoothed moving averages get above the exponential moving averages, a sell signal is generated and the strategy automatically places a sell order.
When the smoothed moving averages get below the exponential moving averages, a buy signal is generated and the strategy automatically places a sell order.
The Sell signal will be generated when the EMA H1 16 period crosses from above to below.
Sell position will be exited when the H1 14 period crosses from below to above.
The Buy signal will be generated when the EMA H1 16 period crosses from below to above.
Buy position will be exited when EMA H1 14 crosses from above to below
Risk Management
To protect blowing accounts, the Canadian Cross Strategy employs some risk management strategies like stop loss and take profit. It has a default stop loss of 99 PIPS and a take profit of 68 PIPS. A trade can also only be allowed to remain open for 1650 minutes (27.5 hours). This helps in reducing the overnight swaps.
By default, the system does not allow any other trade to be opened as long as there is one open trade. It doesn’t even allow hedging. And the maximum amount of margin that trade can expose is 20% of Equity.
Profitable tick-based backtest
The backtesting results show an expected profit factor of 1.83 which is quite a success for a trading strategy.
