There are so many questions and arguments about the relevance and power of moving average indicators in the market.Some agree that this indicator is very powerful while some are just critics and nothing more.Personally, I respect anything that works for me, especially over a long period of time.I have been using moving average indicators for as long as far back as I started trading around 2007.The next question that I am going to answer immediately is ; how do i apply moving average indicators to my trading?
First, all moving average indicators function in the same way and capacity as correctly-drawn trendlines. We have a rising moving average in an uptrend and a falling one in a downtrend.
The application is to either trade the bounce-off or the break-out.This will be explained in details later.
Now, I use three parameters of moving average. Which are; 200EMA,100EMA, and 50EMA.
I use the three of them to determine the prevailing trend at any time.The wisdom is, choose anyone and stick to it till you master it successfully. Regardless of the parameters, the trend is bullish if price is moving above the moving average and it is down if it is moving under.How do I trade the trend which I have determined?
I like all the three moving averages (200 EMA, 100 EMA, and 50 EMA). However, 200EMA is my most preferred setting.The first thing is to load the 200 EMA on my monthly or weekly chart to know the direction of the long term trend.Next is to switch to daily chart to find the medium trend. The last effort is to move down to 4hour chart.I always look for retracement on the 4hour chart so that I can trade the pull-backs.Now let us apply this to EURUSD and derive signals for next week.
The 4hour chart above shows that EURUSD rose significantly from 1.0339 but the gain was technically halted at 1.0614 which is the power zone of the red 200 EMA on the chart.
The bias is to sell the pair during a confirmed downward pull-back. A bearish pull-back is confirmed once a significant support is broken in a strong donwtrend. The bias is to place a pending short order at the break of the near support and target the next important support.
Therefore, we sell at 1.0477(pending order) with stop loss at 1.0580 and take profit at 1.0349.
Our bias relies on the notion that the trend on both monthly and weekly time frames are bearish as price still moves below the 200 EMA on them.It is always sensible to sell high in a downtrend and buy low in an uptrend.
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