Mobile Media crossover strategy or Lowry system
What is the Lowry system?
This trading technique is also known as the "magic of Moving Stockings". It was developed by Scott Lowry, a futures market operator, and provides a fairly simple yet practical method of operation. It uses only two simple moving averages of 18 and 40 periods. Before we begin with your description we will first describe some basic concepts:
-DF (Delphic Phenomenon): Occurs when the mobile average of 18 periods and the moving average of 40 periods are crossed on the rise or downwards and the price makes a setback through the moving average of 18 periods in the opposite direction to the crossing, to finally go back through the medi A mobile of 18 periods in the direction of the crossing (confirmation of the bullish signal or bearish). Based on this phenomenon, we have the following signals:
Signal of purchase: Bull crossing of the average mobile of 18 periods and the average moving of 40 periods, followed by recoil and crossing bearish of the price of the mobile average 18. The signal is confirmed when the price goes up again and crosses the moving average 18 upward.
Sales signal: Crossover of the mobile average of 18 periods and the moving average of 40 periods, followed by recoil and upward crossing of the price of the mobile average 18. The signal is confirmed when the price goes down and crosses the moving average 18 downward.
-Danger zone: It is defined as the zone located between the moving averages of 18 and 40 periods. In this area it is not advisable to enter orders in the market because it is the area in which the trend is decided. For this reason it is most convenient to confirm the break up or down to open a position.
-System Failure (SF): Occurs when the market performs a Delphic Phenomenon and instead of rising (or lowering) above (or below) the average of 18, is directed in the opposite direction and crosses the average of 40. On occasions when the market fails to complete a Delphic Phenomenon, it usually makes a strong movement in the opposite direction, either upward or downward.
In the following images you can see several charts that show the different possibilities with respect to the Delphic Phenomenon (Delphi phenomenon), ie when the market performs a Delphic Phenomenon either on the rise or downwards and in the end, the price ends Crossing the average of 18 periods (signal of entry to the market) and when a System Failure is produced, ie when the price at the end does not effect the crossing of the average of 18 and it is directed in opposite direction.
This example uses a simple moving average of 4 periods (blue Line) to represent the price while the mobile average of 18 is represented by the red line and the moving average of 40 by the Green Line. The area with grey lines is the danger zone.
To better understand this trading strategy we will see a couple of real examples below:
Bull case
Bearish case
Operations Management
With regard to Stop Loss, this must always be placed outside the danger zone and below the moving average of 40 in the case of bullish or above this in the case of bearish. Every time the moving average of 18 is above the average of 40 we will be in the bull case and therefore look for a chance to buy. On the contrary if the average of 18 periods is below 40 we will be in the case of bearish and look for a sale opportunity.
One important thing to keep in mind is that if the market is in a side range, false signals can be produced, which is why it is advisable to use this technique only if the ADX indicator is rising, which is a sign that the market has a tendency.
Once a position is opened, you can move the stop of losses to a level below (above) the average of 40, ie is changing this along with that moving average as the market is moving in our favor. In this way we can take even intermediate tendencies (up to several months of duration) from almost the beginning until they finish.
The half-cross 18-40.
Contrary to other strategies involving moving averages, in this technique the crossing of the averages of 18 and 40 periods does not usually indicate the precise moment to enter the market in the direction of the crossing itself. Normally the optimal point to open a position does not coincide with the crossover but is posterior to this so you have to be patient and the basis of the Lowry system.
When a crossing of simple averages of 18 and 40 periods occurs, what happens is that the average value of the closures of the last 18 periods is exactly equal to the mean value of the closings of the last 40 periods. In the bull case, if we want to confirm an upward trend to open a buying position it is necessary that the average of the last 18 periods is clearly greater than the average of the last 40 periods because otherwise we will not have a upward trend. The opposite is true of the bearish case.
This is where there is the main failure of many trading systems based on medium crosses which employ these as signals to enter the market as the price has the tendency to make corrections regarding the rise or descent that caused the crossing.
The advantage of the Lowry system is that it awaits this correction and then enters the market in the same sense of crossing only if the tendency is reaffirmed, that is when the price breaks up or down the average of 18. In the bull case this allows us to place a purchase order above the average of 18 which has the additional advantage that if a System Failure occurs and the market changes trend the order will not be executed and we will not have any loss.
Likewise, it is possible to use the System Failure in our favor, for example placing a sales order (in the bull case) below the average of 40 periods in case the price falls enough to activate it and open a short position with a market te Ndencia clearly bearish. The opposite could be done with a System Failure produced in a downward market, ie placing a purchase order above the average of 40 periods.
As has been seen the Lowry system is based on a strategy of cross-media that unlike others gives the operator several possibilities to open winning positions and at the same time allows you to perform more reliable operations without so many false signals.
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