EMA crossover

A trend-following strategy that buys when a fast exponential moving average crosses above a slow one and sells when it crosses back below.

The indicator

An exponential moving average weights recent prices more heavily than older ones. With a smoothing factor $\alpha = 2/(n+1)$ the recursion is

$$\text{EMA}_t = \alpha \cdot p_t + (1 - \alpha) \cdot \text{EMA}_{t-1}$$

where $p_t$ is the close price at bar $t$ and $n$ is the period.

Choosing periods

Fast	Slow	Character
9	21	Reactive, more signals
12	26	The MACD defaults
50	200	Slow, filters most of the noise

The graph

flowchart LR
  P[Price source] --> F[EMA fast]
  P --> S[EMA slow]
  F --> X[Crossover]
  S --> X
  X -->|up| B[Buy]
  X -->|down| L[Sell]

Signal logic

The crossover module emits 1 on the bar where the fast line moves above the slow line, -1 where it drops below, and 0 otherwise:

def crossover(fast, slow):
    above = fast > slow
    return above.astype(int).diff().fillna(0)

Backtest

Run the strategy over at least one full market cycle before trusting it. Trend followers lose in sideways markets, so the equity curve should be judged on drawdown as much as on return.