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1992issue C031-5

Confirming currency-fund trends with a crossover and a filter

A 10-week moving average marks only a candidate break on a dollar index or currency fund. The 10-week average minus the 4-week average must cross zero with that break before a foreign-currency hypothesis is written down.

  • A 10-week moving average is the intermediate baseline path; a moving-average crossover only nominates a possible trend change.
  • Average-difference confirmation subtracts the 4-week moving average from the 10-week moving average and is read at the zero line as the trend filter.
  • Zero-line agreement is required: the confirmation series must change sign together with the series-versus-average break before a buy or sell hypothesis is mapped.
  • The mapped hypothesis stays in force while the confirmation series remains on the same side of zero; an approach back toward the average on that side is a same-side retracement.
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Current trackMoving-average crossover108 readingsTrend filter137 readingsMoving average449 readings

A baseline path, not a decision

A dollar index is smoothed with a 10-week moving average to represent an intermediate trend spanning weeks to months. That lookback mean is the moving average: an intermediate baseline path through ordered index observations.

A possible trend change is marked when that dollar index crosses above or below its 10-week moving average. That moving-average crossover is a candidate event in which the series itself crosses the baseline. It is not treated as a finished decision.

Average-difference confirmation

A confirmation series is built by subtracting the 4-week moving average of the same dollar index from its 10-week moving average and reading crossings of the zero line. That construction is average-difference confirmation: the longer moving average minus the shorter moving average of the same series, read at the zero line.

This second series is the trend filter. A trend change is accepted only when that confirmation series crosses zero together with the dollar index crossing its 10-week moving average. That joint rule is zero-line agreement: the confirmation series must change sign on the same event as the series-versus-average break.

When a hypothesis is written down

Under those joint rules, a confirmed rise of the dollar index through the 10-week average is mapped to a foreign-currency sell hypothesis, and a confirmed fall through the average is mapped to a buy hypothesis.

The mapped hypothesis stays in force while the confirmation series remains on the same side of zero. An approach of the index toward the 10-week average with the series still on that side is treated as a same-side retracement inside the existing trend.

The 1990 dollar-index illustration

In the dollar-index example from February 1990, a break below the 10-week average was accompanied by the confirmation series moving above zero. The index then stayed below that average for eight months before a November 1990 low.

When that illustrated dollar-index trend later reversed, the confirmation series moved below the zero line.

The same construction on currency funds

The same 10-week average, 4-week-versus-10-week confirmation construction, and joint-crossing rules are applied to individual currency-fund series as to the dollar index.

In July 1991, a dollar-index break below its 10-week average coincided with a mark-denominated currency fund breaking above its own 10-week average. After that break, the fund's confirmation series agreed. Later dips to the average occurred while the series stayed below zero.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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19921-5 pp.Next on Moving-average crossoverA moving-average slope filter for crossover signalsKeep the moving-average-crossover as the reversal signal and add a trend-filter so a slope-measure can permit or block that signal.
All readings on this track · 57 readings
  1. 1988Constructing moving averages: weights, smoothing and crossovers
  2. 1988Constructing breadth and average trend states
  3. 1989Evaluating an always-in-the-market moving-average crossover
  4. 1989Constructing symmetric market-breadth ratio accumulators
  5. 1989Objective crossover tests of Fibonacci wave ratios
  6. 1990Volume-adjusted moving average construction
  7. 1991Constructing a mechanical crossover on a synthetic price series
  8. 1991A two-speed breadth reading for intermediate market direction
  9. 1992A Deutschemark yield map with dual-average and relative-strength timing
  10. 1992Confirming currency-fund trends with a crossover and a filter
  11. 1992A moving-average slope filter for crossover signals
  12. 1992Occupancy and split-sample tests for average crossovers
  13. 1994Gold-mining seasonality and bond-fund duration switching
  14. 1994Price oscillator from two moving averages
  15. 1995Explicit exponential weights and binary entry filters
  16. 1996Currency futures crossover with slope, bond filter, and stop
  17. 1996Two-market average crossover entry with a fixed stop
  18. 1997Construction of a filtered three-average crossover
  19. 1998Two-group exponential average compression as a trend filter
  20. 1998Constructing r-squared trend filters with dual lookbacks
  21. 1998Moving-average length is a habit, not a secret
  22. 1999Solving the close that triggers a moving-average crossover
  23. 2000Kagi yang and yin control versus crossover noise
  24. 2000Constructing simple moving average crossover filters
  25. 2000Building a vertical-horizontal filter to gate trend signals
  26. 2000Two-average crossover as a check on trend following
  27. 2003Stacked exponential-average retracement entries and extreme stops
  28. 2003Evaluating oscillator thresholds against optimized crossovers
  29. 2004Constructing a semicycle trend-quality filter
  30. 2004Commodity subgroups labeled by crossover, support, or convergence
  31. 2004Full-window evaluation of crossover trend systems
  32. 2004Two-average trend filters as a classroom critique of indicator stacking
  33. 2005Three-layer confirmation from a moving-average cross, candles, and Q-stick
  34. 2005Charting put prices beside an equity breakdown
  35. 2005Range-gated moving-average crossover construction
  36. 2007Anticipating a simple-average crossover with a threshold-close
  37. 2007Anticipating moving-average crossovers one bar ahead
  38. 2007Lead-series moving-average crossovers with a stochastic and relative strength index
  39. 2007Next-bar SMA crossover hypotheses from theoretical crossing values
  40. 2007Anticipating a moving-average crossover before confirmation
  41. 2007A three-horizon moving-average stack as a construction problem
  42. 2007Confirming trend with regression slope and r-squared
  43. 2008Constructing a multi-timeframe smoothed crossover
  44. 2008Best-day clusters versus trend filters
  45. 2008Allied markets as a confirmation gate for crossover and breakout signals
  46. 2008Weekly exponential-average crossover as a mechanical trend case study
  47. 2010Evaluating a 200-day crossover as long, short, and stand-aside rules
  48. 2010Read a 10-and-40 trend on two neighboring time frames
  49. 2012Sampling unit as a first-class parameter on dual simple moving averages
  50. 2012Constructing index-ETF entries from volatility-index persistence
  51. 2013Moving-average baselines versus crossover signals
  52. 2013Constructing a typical-price and heikin-ashi crossover as one mechanical procedure
  53. 2016A three-gate checklist for longs after a sharp drop
  54. 2016Weekly inflation-ratio crossover for commodity regimes
  55. 2017Normalized Laguerre zero-axis warning as a two-marker construction
  56. 2019Range-weighted construction of an adaptive exponential moving average
  57. 2020Construct a second-pullback entry after a moving-average crossover
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