An improved moving average technical trading rule

• The suggested approach uses a threshold which acts as a dynamic trailing stop.
• This modification increases the cumulative return and Sharpe ratio of the investor.
• It results in smaller maximum drawdown and drawdown duration.

This paper proposes a modified version of the widely used price and moving average cross-over trading strategies. The suggested approach (presented in its ‘long only’ version) is a combination of cross-over ‘buy’ signals and a dynamic threshold value which acts as a dynamic trailing stop. The trading behaviour and performance from this modified strategy are different from the standard approach with results showing that, on average, the proposed modification increases the cumulative return and the Sharpe ratio of the investor while exhibiting smaller maximum drawdown and smaller drawdown duration than the standard strategy.