The Simple Moving Average Trading Strategy Used In Forex Market Analysis:
The moving averages is one of the most common trading strategy used by forex traders. It depends on the moving average cross over.
A moving averages trading strategy consist of different kinds base on the MA configuration. They are the simple moving average ( SMA), exponential moving average ( EMA), smoothed moving average ( STMA), linear weigh moving average (LWMA).
The idea rooting this trading strategy reviews or shows price action within a particular reversal level be it at the top or bottom.
This trading strategy make use of moving averages as a signal for change in trend direction be it short or long trend within a forex market environment.
On this online learning platform, a moving average of a 20 and 40 simple movings average will be considered. see Simple Moving Averages configuration image below
SMA 20: A black moving average indicates a simple moving average with parameters set to 20 in the price chart.
SMA 40: This is indicated with a blue moving average in the price chart image.
Your moving average parameters will be set to the above image illustration.
The SMA Trading Strategy For An Up Trend market
Up Trend:
The moving average SMA 20 ( simple moving average line color is black) will cross over to the top and SMA 40 ( simple moving average line color is blue) moves below. So SMA 20 (black) at the top while SMA 40 (blue) stays below.
Trading entry is at the point where SMA 20 cross, SMA 40 to the top side. Entry is marked with yellow horizontal line.
Stop out point marked with black horizontal line is at the low of the previous swing low.
EXIT is at the point where SMA 20 ( black moving average line) cross, SMA 40 ( blue moving average line) to the down side. This point is marked with the blue horizontal line.
The SMA strategy for Down Trend market ( a bearish market).
Down trend:
The moving average SMA 20 moves below crossing over SMA 40 to the down side. This is as a result of price action moving down, causing the SMA 20 to cross over SMA 40 resulting to SMA 40 at the top and SMA 20 below.
This image above shows an ENTRY POINT marked with yellow horizontal line, STOP OUT POINT is marked black and EXIT POINT marked with blue horizontal line for a bearish market formation.
Trading entry is at the point where SMA 20 cross, SMA 40 to the down side.
Stop out point is at the top of the previous swing high.
EXIT is at the point where SMA 20 cross, SMA 40 to the top side.
Before making any financial decisions try this trading strategy on a Demo account, understand the strategy before making your decisions.
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