The 9/30 trading strategy is a trend-following strategy that uses two moving averages — a 9-period EMA (exponential moving average) and a 30-period WMA (weighted moving average) — to spot trading opportunities when there is a pullback. The 9-period EMA shows the short-term trend, while the 30-period WMA shows the longer-term trend.
One common adage in the market is, “The trend is your friend.” Since no trend ever moves in a straight fashion, but with a series of pullbacks and impulse moves, it’s wise to find a way to ride the trend using opportunities provided by the pullbacks. The 9/30 trading strategy is a straightforward way to do that, but what is the strategy about?
In this post, we’re going to discuss the 9/30 trading strategy and how to set it up. Let’s dive in.
Table of contents:
What is the 9/30 trading strategy?
The 9/30 trading strategy is a trend-following strategy that is based on two moving averages — a 9-period EMA (exponential moving average) and a 30-period WMA (weighted moving average). It uses the two moving averages to spot trading opportunities when there is a pullback. The 9-period EMA shows the short-term trend, while the 30-period WMA shows the longer-term trend.
As you know, the moving average indicator is probably one of the most popular trend indicators used by traders and analysts to study price movements. Most market players, including institutional traders and even financial websites like WSJ and Bloomberg, usually pay close attention to key moving averages, including 9 MA, 30MA, 50 MA, and 200 MA, and use them to make analyses and predictions about stocks.
Traditionally, when two moving averages are combined, they are used to create a moving average crossover strategy. But unlike the EMA crossover strategy, which is more used for reversal trading signals, the 9/30 trading strategy is used to ride the trend from successive pullbacks. It is a trading strategy that is used to exploit the opportunities created by pullbacks in the current trend direction, which is also identified by the moving averages.
The 9/30 strategy setup consists of the following:
- 9-period EMA is the shorter-term moving average
- 30-period WMA is the longer-term moving average
- The space between the averages is the pullback zone, which is considered the area of opportunity
The 9 and 30 EMA trading strategy seeks to take advantage of the blank space created between the two moving averages. Since the 9-EMA is the short-term moving average and the 30-EMA is our long-term moving average, the 9-period EMA being above the 30-period WMA indicates an up-trending market, while the 9 EMA being below the 30 WMA indicates a down-trending market.
However, the slope of the indicators also matters — in an uptrend, both moving averages should be pointing upward, while in a downtrend, both should be pointing downward.
The 9/30 can be used on any market and time frame however, lower time frames can produce a lot of whipsaw price action. The trading strategy shows how and when to trade pullbacks and ride the trend. And as the saying goes: “The trend is your friend.”
Originally developed by Mike Burns, the 9/30 trading strategy was created to operate differently from a moving average crossover system, even though it uses two moving averages — the 9-period EMA and the 30-period WMA. To better appreciate how the 9/30 trading strategy works, let’s take a look at a moving average crossover system to see how they are different.
What is a moving average crossover system?
A moving average crossover system is a strategy that uses two moving averages — a fast (short-period) moving average and a long (long-period) moving average — such that the faster moving average crossing above or below the slower moving average creates a trading signal. The system is used to identify possible trend reversals. Another example of a moving average crossover system is the Death Cross trading strategy and the Double Death cross strategy.
When the faster moving average crosses above the slower moving average, it is called a golden cross, and it indicates that a potential uptrend is emerging. On the other hand, when the faster-moving average cross below the slower-moving average, it is called a death cross and could indicate an emerging downtrend.
The moving average crossover system has been in use for a long time. While the crossover may indicate a potential change in the trend direction, it is an early signal, which might end up becoming a false signal. This is why analysts often wait for the slower moving average to also slope in the direction of the emerging trend. But as with most moving average systems, the crossover system lags the price action because it uses past price data
How the 9/30 strategy is different from the moving average crossover system
While both the 9/30 strategy and the crossover system use two moving averages, the 9/30 strategy is different from the crossover system in many ways, such as:
- The 9/30 system is used for trading in the direction of the existing trend by spotting the opportunities provided by pullbacks in a trend. In contrast, the crossover system aims to spot the trend reversal.
- In the 9/30 strategy, the faster moving average needs not cross the slower moving average, but in the crossover system, the signal lies in the faster moving average crossing over the slower one.
Apart from the above differences, the combination of the exponential moving average and the weighted moving average gives a wider spread between the two MAs. This is a key principle that makes this 9/30 moving average strategy work.
How do you set up the 9/30 system?
Setting up the 9/30 system is easy because every trading platform has the moving average indicators you need to create the system.
(If you’re an Amibroker user, we’d like to inform you that we provide the code for all moving averages. You get the code plus access to over 100 other different trading ideas. Please look at our product called code for all our free strategies.)
Here are the steps to take to implement the 9/30 strategy, according to its innovator:
- Open a chart of the asset you want to trade on your trading platform
- Go to the indicator section of the trading platform and attach an EMA, and set the period to 9
- Attach a WMA to the chart and set the period to 30
- Check the direction of the main trend by observing the slope of the 30-period WMA and also whether the 9-EMA is above or below the WMA (the former is better, but both are great) — the 30 WMA sloping upward (especially with the 9-EMA above it) indicates an uptrend while sloping downward (especially with the 9-EMA below it) indicates a downtrend.
- Note the space between the 9-EMA and 30-WMA, also known as the pullback zone — this is the area of opportunity
- Observe for price pullbacks that get to the pullback zone between the 9-EMA and 30-WMA
- Note a price bar that closes within the pullback zone; this is the trigger bar
- Look for a breakout above the high of the trigger bar in the case of a long trade (in an uptrend) or below the trigger bar in the case of a short trade (in a downtrend)
Note that the 9/30 strategy can be used on any market and timeframe, but the lower timeframes can produce a lot of whipsaw price actions and make the strategy unprofitable.
- Which Time Frame Is Best In Trading?
When to use the 9/30 trading method
The 9/30 trading method is a trend-following strategy that seeks to enter a trade after a pullback. As such, the best time to use the 9/30 trading strategy is when we have established a trend.
The trend can be defined via the two moving averages as follows:
- The bullish trend is defined when the 9-EMA is above the 30-WMA, with the latter sloping upward
- The bearish trend is defined when the 9 EMA is below the 30 WMA, with the latter sloping downward
The bigger the gap between the 9 EMA and 30 WMA and the steeper the slope of the two moving averages is, the stronger the trend is. On the other hand, the flatter the two moving averages are, the weaker the trend is.
The edge in this strategy comes from trading in the direction of the prevailing trend. So, it is important to use it when the market is in an established trend. Avoid using the 9/30 trading setup in flat markets.
Other varieties of the 9 and 30 EMA trading strategy
The 9/30 moving average strategy can be used in ways you never thought possible. It can be used for short-term trading, medium-term trading, and long-term trading. How you use it depends on your preferred timeframe.
There are ways to improve the 9/30 MA trading strategy. For example, if we add a better entry filter, we can gain an extra edge. Instead of using a bar that closes within the pullback zone as the trigger bar, we can use an entire bar being within the pullback zone as the trigger bar.
The downside to this modification is that we will have fewer trading setups.
Another way to modify the strategy is to use a multi-time frame analysis. In this case, we identify the pullback on a higher timeframe, say the daily timeframe, and then step down to an intraday timeframe to trade a breakout of a local support/resistance level or a countertrend line.
9 30 trading strategy (backtest and example) – does it work?
In this section of the article, we make a backtest of the 9 30 trading strategy with specific trading rules and settings.
Before we do that, we’d like to show you how the two moving averages move up and down in relation to the price:
9 30 graphics
The red line is the shortest moving average and moves more erratic up and down compared to the longer (and slower) 30-day WMA.
Let’s go on to backtest with specific trading rules:
9 30 trading strategy backtest no 1
We make the following rules in plain English:
- When the short 9-day EMA crosses ABOVE the “slow” 30-day WMA, we buy at the close.
- When the short 9-day EMA crosses BELOW the “slow” 30-day WMA, we sell at the close.
When we backtest the S&P 500 (SPY) we get the following decent equity curve:
The average gain is 0.85% per trade but fails to beat buy and hold (4.6 vs. 9.2%), although the drawdowns are substantially lower than buy and hold. We backtested many other assets but as far as we see, the strategy is pretty poor in capturing alpha.
Does it improve if we change the number of days in the moving averages? We did a strategy optimization (how to optimize a trading strategy?), but no strategy returned a profit factor above 1.7 (what is a good profit factor?).
9 30 trading strategy backtest no 2
Let’s make a second backtest with 100% quantifiable trading rules:
- The bullish trend is defined when the 9-EMA is above the 30-WMA, with the latter sloping upward
If this is the case, we buy at the close and hold until the next trading day. We sell when one of the two parameters above is false.
The result is more or less in line with backtest no 1: 4.5% CAGR vs. 9.2% for buy and hold. The time spent in the market is only 60%, so we might argue the risk-adjusted return is not so bad.
Does it get any better if we flip the rules?
- The bearish trend is defined when the 9 EMA is below the 30 WMA, with the latter sloping downward
The time spent in the market goes down almost 50% to 30% (because of the long-term rising trend of stocks), and the CAGR drops moderately to 3.9%. However, the equity curve looks like this:
The steep and sudden drawdowns make this strategy practically impossible to trade.
9 30 strategy code
We have provided Amibroker code for this strategy. You’ll also get access to over 100 other different trading ideas/strategies from our best trading strategies:
- Code And Logic For All Free Strategies/Articles
9 30 trading strategy video
We made a video trial on youtube: 9 30 trading strategy.
9 30 trading strategy – ending remarks
Our backtests reveal that the 9/30 trading strategy is far from an optimal strategy nor very useful. There are plenty of better options, for example, among our own single strategy webpage.
FAQ:
How does the 9/30 strategy work?
The 9/30 strategy involves monitoring the relationship between the 9-period EMA and the 30-period WMA. The space between these two moving averages is considered the pullback zone, representing an area of opportunity. Trading signals are generated based on the position and slope of these moving averages.
What distinguishes the 9/30 strategy from a moving average crossover system?
The 9/30 trading strategy was originally developed by Mike Burns. Unlike a traditional moving average crossover system, the 9/30 strategy is designed for trading in the direction of the existing trend. It focuses on exploiting opportunities created by pullbacks in the trend rather than identifying trend reversals.
What is the significance of the pullback zone in the 9/30 strategy?
Setting up the 9/30 strategy involves attaching a 9-period EMA and a 30-period WMA to the price chart. The direction of the main trend is determined by observing the slope of the 30-period WMA and the position of the 9-period EMA relative to the WMA. The pullback zone, represented by the space between the 9-period EMA and the 30-period WMA, is considered the area of opportunity in the 9/30 strategy. This zone is crucial for identifying potential trade setups during pullbacks within the trend.
