Most likely you already have a good idea of what the moving average is and how it works, in this article we are going to discuss Forex Moving average trading strategy and how to deal with it.
It is important to remember that Moving average can show you both the market trend and when the trend is going to reverse. All you have to do is add a few Moving averages with different settings to your trading chart and wait for them to cross. average cross happens when one crosses over another one and cuts it off.
Moving average strategy in simple words
When a Moving cuts that one off, we’ll have a good signal of market trend reversal, so this helps you get into the market at a good time. A good entry will also give you the chance of earning bigger and more risk-free profits.
Let’s take a look at the USDJPY Dollar chart below to help us better understand Moving average trading strategy.
The chart above shows that the pair is moving from April to July in a very bullish trend, rising to around 124.00. But then slowly downward, and in mid-July, we see Moving average 10 below 20, ie, a cross or intersection. What then?
Yes you guessed right, a very good downtrend! If you had opened a trading position at the time with MA strategy, you could have gained thousands of pips from the market.
Of course, not all of the signals generated by this strategy will result in thousands of pips of profits, and we may even experience losing positions. But if you set your stop loss well and put the take profit in the right place, you can make great profits from this market.
How Do Successful Traders Deal?
What most successful traders do is that each time they see a cross in MA indicators, they close their previous position, whether in profit or loss, and open a new one in the other direction. For example, on the Babypips website, a trader named HLHB named its strategy as soon as the new cross closes the position and cuts its loss limit to 150 pips.
The reason for this is that you do not know when the next crossover indicator is going to happen and you may be irreparably hurt by over-trading.
Important point about Moving Origin’s strategy
One thing to keep in mind before testing this method is that it performs well in markets with large trends but it does not perform well in suffering markets. In the suffering markets, you will receive the wrong buy and sell signals that have no harm but to do.
But if you can keep up with the constant advice and know the trend and love it and get it right at the right time, you will definitely be among the most successful traders the market has ever seen!