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2/20 Day EMA Breakout System

This is one of many great systems from Dave Landry. Basically, it is a trend following system. It can be used as a  stand alone system or as part of a larger system. It combines a filter – the two day breakout with an entry method.

As described by Landry in Dave Landry on Swing Trading, he explains that many breakouts after rising above the 20 day EMA (exponential moving average) tend to stay above the moving average for the majority of the trend. He also found that true breakouts occur only after the entire day’s range cleared the 20 day ema. During an upside breakout, the low of the price should not cross below the the 20 Day EMA and during breakdowns, the high of the price must remain below the 20 day EMA

Buy alert. Today’s low and yesterday’s low is greater than the 20 day EMA. Signal valid until low touches or falls below the 20 day EMA.

Buy entry. Stop buy .10 above the 2 day high

Long exit. Stop equal to the 20 day EMA

Sell alert Today’s high and yesterday’s high is less than the 20 day EMA Signal valid until low touches or moves above the 20 day EMA.

Sell entry. Stop sell .10 below the 2 day low

Short exit. Stop equal to the 20d ema

Additionally, you may want to use a directional movement indicator to help avoid whipsaws that are common with moving average systems when they are caught in a trading range.

 For those using Metastock, the coding is below

Enter Long
Alert(Cross(Sum(L > Mov(C,20,E),2) = 2,.5),10) AND HIGH >= Peak(1,Cross(Sum(L > Mov(C,20,E),2) = 2,.5) *HHV(H,2),1) + .001{10 ticks} AND BarsSince(Cross(Sum(L > Mov(C,20,E),2) = 2,.5)) < BarsSince(LOW <= Mov(C,20,E))

Close Long
LOW <= Mov(C,20,E)

Enter Short
Alert(Cross(Sum(H < Mov(C,20,E),2) = 2,.5),10) AND LOW <= Peak(1,Cross(Sum(H < Mov(C,20,E),2) = 2,.5) * LLV(L,2),1) - .001{10 ticks} AND BarsSince(Cross(Sum(H < Mov(C,20,E),2) = 2,.5)) < BarsSince(HIGH >= Mov(C,20,E))

Close Short
HIGH >= Mov(C,20,E)

Source:
Dave Landry on Swing Trading
Technical Analysis Stocks and Commodities v14 no 12
 

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