In futures and contract trading, the dual moving average trading system has become a preferred strategy for many traders due to its simplicity and efficiency. By capturing the crossover signals of short-term and long-term moving averages, one can quickly seize trends and achieve low buy high sell. Below are the core logic, practical steps, and optimization techniques of this system to help you navigate the market easily!

I. Core Logic of the System

Moving Average Selection

Short-term moving averages (such as 5-day, 10-day): responsive and capture short-term price fluctuations.

Long-term moving averages (such as 20-day, 50-day): filter noise and confirm trend direction.

Signal Generation

Golden Cross (Buy Signal): The short-term moving average crosses above the long-term moving average, indicating a trend shift from bearish to bullish.

Death Cross (Sell Signal): Short-term moving average crosses below long-term moving average, indicating a weakening or reversal of the trend.

Trend Judgment

Moving averages arranged upwards (short-term > long-term) indicate a bullish trend, and vice versa indicates a bearish trend.

II. Practical Operation Steps

Parameter Setting

Recommended Combination: 5-day moving average + 20-day moving average (short-term trading) or 50-day moving average + 200-day moving average (long-term trend).

Entry Timing

When a golden cross occurs: buy and hold long positions, set the stop-loss at recent lows or below long-term moving averages.

When a death cross occurs: close long positions, switch to short, and set the stop-loss at recent highs.

Exit Strategy

Passive Exit: Wait for a reverse crossover signal (e.g., exit on death cross if you entered on golden cross).

Proactive Take Profit: Combine with support/resistance levels or fixed profit-loss ratios (e.g., 1:2).

III. Techniques to Improve Winning Rate

Filter False Signals

Combine with Trading Volume: A golden cross with increased volume is more credible, while a death cross on decreased volume may just be a pullback.

Add Trend Indicators (e.g., ADX > 25): Avoid frequent trading in choppy markets.

Dynamic Parameter Adjustment

In high-volatility markets (e.g., cryptocurrencies), you can shorten the moving average periods (e.g., 3-day + 10-day), while in low-volatility markets, extend the periods.

Multi-Period Verification

When the daily golden cross occurs + 4-hour moving averages are arranged bullishly, the signal is stronger.

IV. Risk Management (Key!)

Single Trade Risk: No more than 2% of the principal, for example, for a 10,000 yuan account, single trade stop-loss ≤ 200 yuan.

Stop-Loss Setting:

Fixed Stop-Loss: After entering on a golden cross, set the stop-loss 1%~3% below the long-term moving average.

Dynamic Stop-Loss: Adjust based on ATR (Average True Range), such as 2 times ATR.

Position Management: When increasing positions with floating profits, ensure that the base position has a safety margin (e.g., add more only after 5% profit).

V. Case Demonstration (BTC/USDT Contract)

Bullish Trend:

When the 5-day moving average crosses above the 20-day moving average, and the price stabilizes above the moving averages → Go long.

Set stop-loss below the 20-day moving average, target the previous high resistance level.

Bearish Trend:

The 5-day moving average crosses below the 20-day moving average, and ADX > 25 → Go short.

Set stop-loss above the 20-day moving average, take profit based on support levels.

VI. Notes

Avoid Overtrading: Moving averages can be ineffective in choppy markets; consider pausing operations or reducing position sizes.

Review and Optimize: Record the moving average parameters and profit-loss ratio of each trade, gradually adjusting to fit your style.

Summary: The dual moving average system can stabilize profits in trending markets through the simple rules of 'buy on golden cross, sell on death cross,' combined with strict stop-loss and position management. Remember, discipline and patience are more important than technique! Try using a demo account to validate the strategy before going live!

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