2 Moving Averages | Trend Following

The 2 Moving Averages | Trend Following indicator provides a systematic trend-following framework that combines dual moving averages with Parabolic SAR confirmation to identify high-probability entries while managing risk via ATR-based stop losses.

Usage

The Usage section describes how the script can be used to identify market trends and execute trades based on specific technical criteria.

The strategy identifies a bullish trend when the Fast MA is positioned above the Slow MA and the current market price remains above the Fast MA. Conversely, a bearish trend is identified when the Fast MA is below the Slow MA and the price is trading below the Fast MA.

Traders can use the Parabolic SAR (PSAR) as an additional filter to confirm momentum before entering a position. For risk management, the script automatically calculates position sizes based on a user-defined percentage of equity at risk and sets stop-loss levels derived from the Average True Range (ATR). Users can toggle long or short positions independently to suit specific market biases or regimes.

Details

The script utilizes a multi-layered confirmation approach to minimize whipsaws common in trending strategies. By requiring both an MA crossover and price proximity to the Fast MA, it ensures that entries occur during active momentum.

The integration of the Parabolic SAR adds a secondary volatility-based filter, ensuring that the trade direction aligns with shorter-term price acceleration. The implementation uses a flexible movAvgType function, allowing the user to select from nine different moving average types (SMA, EMA, WMA, HMA, RMA, SWMA, ALMA, VWMA, and VWAP) to better fit the volatility profile of different assets.

Settings

Backtest Time Period

• Filter Date Range of Backtest: Enables or disables the strategy execution within a specific timeframe.
• Start Date: Sets the beginning timestamp for backtesting data.
• End Date: Sets the concluding timestamp for backtesting data.

Long & Short Position

• On/Off Long Position: Enables or disables long entry signals.
• On/Off Short Position: Enables or disables short entry signals.

Moving Average Inputs (Slow & Fast)

• MA Type: Selects the calculation method (e.g., SMA, EMA, VWAP).
• MA Length: Determines the lookback period for the average (Slow defaults to 160, Fast defaults to 40).
• MA Source: Sets the price data point used for the calculation (e.g., Close).

Parabolic SAR Inputs

• Use Parabolic Sar?: Toggles the PSAR as a mandatory entry filter.
• Display Parabolic Sar?: Controls the visibility of the PSAR dots on the chart.
• Start/Increment/Maximum: Standard parameters for adjusting the sensitivity of the PSAR calculation.

Risk Management Inputs

• ATR Length: The lookback period for the Average True Range used in stop-loss calculations.
• Stop Loss - ATR Multiplier: Sets the distance of the stop loss from the entry price based on ATR volatility.
• % of Equity at Risk: Determines the position size based on the total account equity.

FAQ

How do I adjust the strategy for different timeframes? You can modify the Slow and Fast MA lengths in the settings menu to better capture trends on shorter (intraday) or longer (daily/weekly) charts.

What moving average type is recommended? While the default is SMA, many trend-followers prefer EMA for its faster reaction to recent price changes or VWAP for intraday institutional volume confirmation.

How can I access this tool? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.