The Forex trading Moving Averages strategy is solely based on moving averages which are one of the oldest and most widely used technical indicators by traders and analysts worldwide. Do you know how to trade with Forex Moving Averages strategy?
12 November, AtozForex – In this article, we will look at a method to trade using the Moving Average indicator. One of the key traits of the Moving Average indicator is that’s useful for a number of purposes. The indicator can serve as areas of dynamic support and resistance, they can give a trader a sense of direction, showing the overall direction of price movement (trend).
Also, the Moving Average indicator can serve as a tool to smooth out price action. Banks, Hedge Funds and retail Forex traders usually pay attention to the 200 EMA on the daily chart as it is generally believed that it is a major determinant of a trend change or continuation, depending on whether price penetrates it or bounces on it.
Are you aware of the different types of Moving Averages? We have the Simple Moving Averages (SMA), Exponential Moving Average (EMA), Linear Weighted Moving Average (LWMA), and Smoothed Moving Average. Of these, the most widely used are the Simple and Exponential Moving Averages.
Forex Moving Averages strategy explained
For this Forex Trading Moving Averages strategy, we’ll need the 200 EMA and the 21 EMA. The 200 EMA will be used to give us the trend while the 21 EMA will be used for entry and exit.
Forex Moving Averages strategy entry rules
- Buy when Price closes above the 200 EMA and does a pullback to the 21 EMA.
- Sell when price closes below the 200 EMA and does a pullback to the 21 EMA.
An example of buy signals generated when price closes above the 200 EMA and with successive pullbacks to the 21 EMA.
An example of SELL signals generated once price closes below the 200 EMA and with a pull back to the 21 EMA, before a continuation.
Few Moving Averages strategy tips
There are a few things to have in mind when using this strategy, namely:
1. Trade only in the direction of the 200 EMA.
2. Ignore a trade setup if the 200 EMA is flat or trading sideways.
3. Close trade once the price closes below or above the 21 EMA, depending on whether you’re long or short.
4. This is not a 100% strategy, so risk management is very important. Do not risk above 1% of your equity per trade.
If you're still not convinced by the power of Simple Moving averages, make sure to check out Chrysanthos Demetrious' 2MA Forex trading strategy and its results shared on AtoZ Forex every trading day.
This was a basic introduction to the usage of the Simple and Exponential Moving Averages strategy. For a follow up post, you can read and learn about the top 5 best Moving Average Forex trading systems.
Do you have questions about the tutorial on the Forex Trading Moving Average strategy? Post your questions in the comments section below.