Build Guides

Strategy Design Write-Up: Triple EMA v.1

Build Guides


Bailey Moses

Bailey Moses

Fri Jun 10 2022

3 min

Strategy Design Write-Up: Triple EMA v.1

Hey guys!

This is going to be another post on strategies that I have backtested and my thoughts on the strategy performance, as well as the backtest procedure and guidelines. I appreciate any and all feedback or suggestions you may have that may improve either the post layout, or the strategy design itself. Hope you continue to enjoy this series.

Part 1: The Strategy Ruleset

This strategy yet again uses one of my favorite indicators, the exponential moving average (EMA). This time, I use 3 different EMA lengths to form a triple EMA strategy. The entry criteria is based on a 3 bar EMA being greater than all of a 13 bar, an 8 bar, and the last low price. This should represent a very fast increase in price, and strong momentum.

The exit criteria is based on the 8 bar and the 13 bar being less than the 3 bar EMA, and the opening price being below the 3 bar, meaning it has crossed it to the downside. This should represent a change in momentum.

Part 2: The Assets Traded

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

After thinking over the problems with the assets in my last post, I came to the conclusion that I needed more stocks, and more randomness in my selection. Therefore I ran a screener (a new function of Pluto), and randomly chose some stocks from that, along with the usual FAANG. I hoped that this would provide a more accurate, and realistic backtest result.

The screener would not load for me during the backtest (a possible issue on my end), so I manually inputted my random selection of stocks. The screener settings can be seen below:

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

Part 3: The Settings

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

The settings are the same as usual. Nothing too important!

Part 4: The Backtest Scenario

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1
Over a year and a half worth of data.

Part 5: The Results

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

C....not quite satisfactory. Seems to have some good points, but not profitable. I am going to take a closer look into the results.

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

So, it returned more than buying and holding would have (for all that is worth lol), and had a high win rate. I might be able to find something to help optimize the strategy in the win rate:

r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1

Looks like there were a good few large losses within the trades taken, which heavily offset all of the small wins. Only 1 win over 25%, yet 10 losses of over 25% - rough. Maybe better exit criteria could help with this.

Worst trade:
r/plutocapital - Strategy Design Write-up no.4 - Triple EMA v.1
Bought at $7.94 and sold in the low $4's. OUCH!

I tested with a few variations on the 3 bar being greater than open, close, low and high, none of which produced better results.

Part 6: Potential For Optimization

  • Different exit criteria
  • Different timeframe
  • Greater length of backtesting period

Hope you all enjoyed this post!

pluto logo
Los Angeles, CA

Pluto is not a broker-dealer, investment adviser or member of FINRA. Securities offered by Alpaca Securities LLC (“Alpaca Securities”). Alpaca Securities is a member of FINRA and the Securities Investor Protection Corporation.

Alpaca Securities, LLC (“Alpaca Securities”) is not responsible for and is not providing the technology and services you receive from us to access and manage your brokerage account with Alpaca Securities. You firmly agree to hold Alpaca and its affiliates, owners, directors, employees, clearing firm and agents harmless for any loss or damage arising from the use of or unavailability of the technology and services that we are providing.

The content on this website is for informational purposes only. Pluto does not recommend any specific securities or investment strategies. Investing involves risk & investments may lose value, including the loss of principal. Past performance does not guarantee future results. Investors should consider their investment objectives and risks carefully before investing.