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Trade with the Odds: How To Construct Market-Beating Trading Systems, + Website by Anthony Trongone, PHD, CFP, CTA

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Chapter 10

Going against the Grain

A person who is too nice an observer of the business of the crowd, like one who is too curious in observing the labor of bees, will often be stung for his curiosity.

—Alexander Pope

After making an extensive study of moving averages, we would be remiss not to adopt a different strategy. A crossover moving average (CMA) captures the difference between two moving averages with differing durations. This popular indicator has us subtracting two simple moving averages. Although there are numerous variants, we will begin with a simple 3-8 day combination.1

Crossover Moving Averages

The calculation for a 3-8 crossover is

Score = 3-day simple moving average − 8-day simple moving average

The 3-day SMA provides a faster ...

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