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03/23/2022 |

The Best Moving Average Crosses To Day Trade On $QQQ

One of the very first indicators that new traders learn about is the Moving Average. There are several different types of moving averages; Simple, Exponential, and Hull, to name a few, but they all seek to perform a similar function; To show us the average price over a specified period of time.

One of the most common ways to utilize moving averages in your trading is to buy and sell when they cross. What is less known is which length and style of moving average offer the best returns when day trading. To answer this question, we’ve taken a look at some of the most commonly used moving average lengths and styles and utilized our Strategy Tester to find out which crosses work the best.

In this test, we’ll be looking at several different moving average combinations including;

  • 3 SMA Crossing Up on 8 SMA
  • 5 SMA Crossing Up on 10 SMA
  • 8 SMA Crossing Up on 21 SMA
  • 10 SMA Crossing Up on 20 SMA
  • 15 SMA Crossing Up on 30 SMA
  • 50 SMA Crossing Up on 200 SMA

We’re taking the bullish bias here, so we’ll be buying when they cross up and we’ll sell when they cross down. In addition, we’ll be testing each of the three types of Moving Averages listed above. We’ll be utilizing the 15 minute time frame, we’ll be testing back 7,000 candles, and we’ll be running all tests on the $QQQ ETF. 

Let’s jump in! 

The Simple Moving Average

The SMA is the most commonly used of the MA’s, so we felt it the most appropriate moving average to start with. Let’s dig into the results and see how these various crosses performed;

3 SMA Cross Up on 8 SMA

5 SMA Cross Up on 10 SMA

8 SMA Cross Up on 21 SMA

10 SMA Cross Up on 20 SMA

15 SMA Cross Up on 30 SMA

50 SMA Cross Up on 200 SMA

Cumulative Results

In the table below, we can see how the results compare. The first thing to note is % gain. The 5 SMA & 10 SMA cross is the clear winner here with a net profit of +19.12% over 383 trades. Now, that might be a lot of trades for the less active trader, so an alternative with nearly the same results would be the 15 SMA & 30 SMA cross. It has offered a return of +17.90% over the same period of time and only took about 1/3 the trades. The clear loser of the bunch is the 50 SMA & 200 SMA cross, which netted a profit of only 1.89%.

The Exponential Moving Average

Many traders prefer to use EMAs because they give additional weight to the most recent price action. Let’s see if that additional weight aides in the results of the strategy;

3 SMA Cross Up on 8 EMA5 SMA Cross Up on 10 EMA

8 SMA Cross Up on 21 EMA

10 SMA Cross Up on 20 EMA

15 SMA Cross Up on 30 EMA

50 SMA Cross Up on 200 EMA

Cumulative Results

In the table below, we get an idea of how the results compare. Much like the SMA strategy, the 5 & 10 cross was the best performer again, achieving a net gain of +18.30%. Again, of note is the sheer number of trades taken, so for the less active trader, an alternative could be the 15 & 30 cross, which manages a profit of +18.32% over the same period of time. Again, much like the SMA strategy, the worst performer is the 50 & 200 cross.

The Hull Moving Average

The Hull Moving Average is the least commonly used moving average of the styles that we tested. The difference between the Hull and the Simple and Exponential MAs is its calculation. It is designed to reduce the lag often associated with moving averages by providing a faster signal on a smoother visual plane. Let’s see how this alternate calculation effects our results. The Hull Moving Average requires a minimum period of 5, so we’ve removed the 3 & 8 cross from the dataset. 

5 HMA Cross Up on 10 HMA

8 HMA Cross Up on 21 HMA

10 HMA Cross Up on 20 HMA

15 HMA Cross Up on 30 HMA

50 HMA Cross Up on 200 HMA

Cumulative Results

As we can see in the table below, the Hull Moving Average presents us with a very interesting data set. The first interesting thing is that the 5 & 10 cross performs quite poorly, especially in comparison to the same cross on the other moving average styles. With a net loss of -18.32%, and an astronomical trade count, this is the worst performing strategy that we tested. On the opposite side of the coin, however, is the 15 & 30 cross. This cross is the best performing strategy of all of the tests we ran. It nets a profit of +20.17% over 296 trades, and has a 49% win rate.

Final Conclusions

When we take all of the data into consideration, it’s clear that the 15 & 30 cross is the best performer across moving average styles. The HMA does yield the highest percentage return, but with a total of 296 trades, this strategy may be best suited for the active trader. For a trader who is interested in less signals, we suggest the EMA strategy, as it nets an +18.32% profit, only -1.85% less than the HMA, and does so in only 92 trades.

We hope you found this helpful, and encourage you to drill down even more to see if there are more variables that could be added to this strategy to increase its performance!