This is how I see this strategy:
– this strategy is a trend-following strategy
– how do we know when the trend changes? we pick a slower SMA as a reference, and compare them relatively
– the faster SMA1 follows the trend closer
– the slower SMA2 follows the trend less closer
– when SMA1 crosses SMA2 above, since SMA1 follows the trend closer, meaning that the trend starts to change and goes up, so we BUY
– conversely, when SMA1 crosses SMA2 below, means the trend starts to go down, so we SELL
Does this make any sense?