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MA Trading Strategies

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Ishiyaku Adamu Njidda
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12 views

MA Trading Strategies

Uploaded by

Ishiyaku Adamu Njidda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MOVING AVERAGE TRADING STRATEGIES

Traders must pick periods in which to create moving averages to identify


price trends. Common periods used are 100 days, 200 days, and 500 days,
for long-term support, and five days, 10 days, 20 days, and 50 days for
near-term trends.

 For identifying significant, long-term support and resistance levels and


overall trends, the 50-day, 100-day, and 200-day moving averages are
the most common. Based on historical statistics, these longer-term
moving averages are considered more reliable trend indicators and less
susceptible to temporary fluctuations in price.
The 200-day moving average is considered especially significant in
stock trading. As long as the 50-day moving average of a stock price
remains above the 200-day moving average, the stock is generally
thought to be in a bullish trend. A crossover to the downside of the
200-day moving average is interpreted as bearish.

 The 5-, 10-, 20- and 50-day moving averages are often used to spot near-
term trend changes. Changes in direction by these shorter-term moving
averages are watched as possible early clues to longer-term trend
changes.

Crossovers of the 50-day moving average with either the 10-day or


20-day moving average are regarded as significant.

 The 10-day moving average plotted on an hourly chart is frequently used


to guide traders in intraday trading.

Short-term traders typically rely on the 12 or 26 day EMA, while the


ever-popular 50-day and 200-day EMA is used by long-term investors.
While the EMA line reacts more quickly to price swings than the SMA,
it can still lag quite a bit over longer periods.

Drawbacks of Moving Averages

Moving averages are backward-looking by nature. While EMAs can reduce


the lag effect on developing trends, they still rely on past data that can
never be applied to the future with complete confidence.
Additionally, the increased reliance on recent price movements with an EMA
tends to make it more sensitive to false trading signals, or whipsaws, than
an SMA. For this reason, an EMA may require further confirmation before a
trade can be identified

What Is a Good Moving Average Period to Use?

A common and important moving average period to use is the 200-day


moving average. It can serve as a benchmark when comparing another
moving average, such as the 50-day moving average, to it. If the 50-day
moving average is above the 200-day moving average, then the stock is
considered to be in a bullish position.

scalpers focusing on one-minute charts, while traditional day traders


examine five-minute and 15-minute charts. This process even extends into
overnight holds, allowing swing traders to use those averages on a 60-
minute chart.

Five, eight, and 13-bar simple moving averages (SMAs) offer relatively
strong inputs for day traders seeking an edge in trading the market from
both the long and short sides.

5-8-13 Moving Averages

The combination of five, eight, and 13-bar simple moving averages (SMAs)
offers a relatively strong fit for day trading strategies. These are Fibonacci-
tuned settings that have withstood the test of time, but interpretive skills
are required to use the settings appropriately. It's a visual process—
examining relative relationships between moving averages and price—as
well as moving average slopes that reflect subtle shifts in short-
term momentum.

Increases in observed momentum offer buying opportunities for day traders,


while decreases in momentum may signal timely exits. Decreases that
trigger bearish moving average crossovers in multiple time frames
offer short sale opportunities, with profitable sales covered when moving
averages start to turn higher. The process also identifies sideways markets,
telling the day trader to stand aside when intraday trending is weak and
profitable opportunities are limited.
 By combining two or three indicators with MA, it will
help you make better decisions.
A good strategy is to combine MAs with volume-based indicators,
and oscillators. Personally, we suggest combining MAs
with stochastics, Relative strength index (RSI),
and accumulation/distribution.

Another strategy that has been very important to me is to combine two


moving averages in the same chart. In this, you combine a long-term MA
(slow) and a short term MA (fast).

For instance, in a 15-minute chart, you can have a 14-day exponential


moving average and a 5-day EMA. After this, you should look at the areas
where the two lines cross.
If the fast EMA crosses the slow EMA going up, then this is an indication of a
bullish chart. The vice-versa is true too.

HERE IS ANOTHER MA STRATEGY STEPS.

 Plot three exponential moving averages—a five-period EMA, a 20-


period EMA, and 50-period EMA—on a 15-minute chart.
 Buy when the five-period EMA crosses from below to above the 20-
period EMA, and the price, five, and 20-period EMAs are above the 50
EMA.
 For a sell trade, sell when the five-period EMA crosses from above to
below the 20-period EMA, and both EMAs and the price are below the
50-period EMA.
 Place the initial stop-loss order below the 20-period EMA (for a buy
trade), or alternatively about 10 pips from the entry price.
 An optional step is to move the stop-loss to break even when the trade
is 10 pips profitable.
 Consider placing a profit target of 20 pips, or alternatively exit when
the five-period falls below the 20-period if long, or when the five
moves above the 20 when short.

Forex traders often use a short-term MA crossover of a long-term MA as the


basis for a trading strategy. Play with different MA lengths or time frames to
see which works best for you.
MOVING AVERAGES SETUP

 25 and 15 periods SMA - Popular


 12 and 24 periods SMA - Popular
 5, 8 and 13 periods SMA - Popular (Fibonacci Ratios)

Test each combination

Look at the areas where the lines cross - for bullish or bearish signals

By combining two or three indicators with MA, it will help you make better decisions.
A good strategy is to combine MAs with volume-based indicators, and oscillators.

Personally, we suggest combining MAs with Stochastics, Relative Strength Index (RSI),
and Accumulation/Distribution.

ADDITIONAL

50EM to determine strength of a currency if it is above it shows stronger


Enter when the market is near the 50Ema (reversal/retest)
Check history of touches on the 50 EMA line

200EMA. IF IT IS ABOVE GO LONG, BELOW GO SHORT EURUSD

For short term trend 20Ema is good


For medium term 50-100
For long term 200ema

PAY ATTENTION TO
 Hammer
 Bullish engulfing
- Confirmation before entry

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