Among experienced technical traders, it is almost conventional to blend one trend detector and one oscillator into a market strategy. The former will help locate a trend, while the latter will pinpoint low risk entry points. The Double Cross is one such proven short-term system that provides long and short trades based on the simultaneous generation of signals on two of the most popular technical indicators – Moving Average Convergence Divergence (MACD) and the Stochastic Oscillator.
The rapid expansion of online trading platforms has provided the average retail, cryptocurrency trader access to hundreds of technical analysis indicators. But just because such a wide array of indicators is available at your disposal doesn’t imply you need to utilize too many of them. Any successful market participant will tell you that ultimately only two, or at max three, are needed to successfully navigate the markets.
What is however important is that you find the ideal combination of indicators to apply. Creating a trading system by incorporating two trend following indicators like moving average and Average Direction Index would be self-defeating. So would be the case if two price momentum oscillators are used in conjunction.
Underlying Asset: Any major cryptocurrency pair
Chart Type: Candlestick
Time-frame: 15 Minutes, 3 Minutes
- Moving Average Convergence Divergence (MACD) (12, 26, 9)
- Stochastic Oscillator (5, 3, 3)
Long Entry Rules
- The Double Cross system is based on the MACD and Stochastic Oscillator working in sync, and charting bullish or bearish crossovers simultaneously.
- For long trades, we first switch to the 15 minute chart and wait for bullish crossovers to occur in both the indicators within two bars of each other. Ideally, the Stochastic cross should precede the MACD crossover, as the converse often leads to consolidating price ranges.
- To add further strength and confirmation to the long entry signals, we only undertake trades where the Stochastic crossover took places below the 50-mark.
- When all of the above three conditions have been met, we shift to the 3 minute chart window and enter long on the break above the last major pivot high.
Stop Loss and Exit Strategy
For conservative traders, the initial protective stop loss can be set just below the last pivot low on the 3 minute chart. As and when the trade moves in to profitable territory, the stop can be trailed higher to shield against sudden market reversals.
Similarly, the profit target is also dependent on the risk appetite of the trader. A logical area to book profits is when the Stochastic enters the overbought zone (>80) on the 15 minute chart. More aggressive traders can wait for the fast Stochastic line to dip below the slow Stochastic.
Cryptocurrency Trading Example: ETHUSD
Short Entry Rules
- Since the Double Cross is based on the MACD and Stochastic signalling bearish crossovers simultaneously, we first open the 15 minute chart and wait for the crossovers to materialize in both of the indicators; at most within two bars of each other.
- To further filter the signals, we only accept trades when the Stochastic crossover is plotted above the 50-mark.
- When the above two conditions have been met, we zero in on the 3 minute chart window and initiate a short trade as soon as the last major pivot low is breached.
Stop Loss and Exit Strategy
For beginner traders whose risk appetite is low, the initial stop loss can be set just above the last major pivot high on the 3 minute chart. As soon as the trade moves in favour, the stop can be trailed lower to lock in profits
A simple profit-booking strategy is to square off half the positions when the Stochastic enters the oversold zone (<20) on the 15 minute charts, with the remainder allowed to run until the fast Stochastic line closes above the slow Stochastic line.
Cryptocurrency Trading Example: BTCUSD
Double Cross System Advantages
- The Double Cross is an intraday trading system that does not require you to hold positions overnight.
- The MACD and Stochastic indicators complement each other very well.
- Since this is a trend-following strategy, you swim along with the market’s tide, increasing the odds of your success.
- MACD and Stochastic crossovers are easily interpreted. It only takes a couple of minutes to spot one.