Moving Average Trading Strategy
I hope you will allow me to teach you a simple trading strategy that any trader can use, even beginners in the seemingly never-ending quest for profitability.
Moving averages have pretty much been around since the dawn of trading and there is a lot of hate on them for being lagging indicators (providing late signals). But I have some good news, you can still be late to a trade and profit in the long run. So long as you play for the RIGHT TEAM.
Moving averages, like any indicator, are just simple mathematical equations that plot lines onto your screen. That’s not what’s important, what is important is that you use them in context. Any indicator should be used in context. What do I mean by IN CONTEXT?
In the direction of the trend. The path of least resistance. The right team. The current of the river.
Any way you want to slice it. It has and will always be easier to trade in the direction of the trend. Now that we know the context, let’s get to the method.
ENTRY (Buy position)
1. Identify Bullish Trend by drawing a trend line across two points with at least one Confirmed higher low
2. Wait for 12 EMA to cross 26 EMA upwards.
3. Initiate BUY
Confirmed* means the higher low has now extended upwards and broken the previous high, Thus confirming it.
EXIT (Buy position)
1. Place a stop after the swing low of entry
2. Exit trade if EMAs crosses back the other way
3. Move stop to B/E After new highs have been created.
It’s important to know what NOT TO DO as well in any strategy. So DO NOT:
- Buy an upward cross of the EMAs in a down-trend
- Sell a Downward cross of the EMAs in an up-trend
EVER! Got it? Good.
(Source – TradingView)
And so the opposite is true for a Sell position. Literally, reverse the instructions for a Buy and Bob’s your uncle.
(Source – TradingView)
Voila! Asi Me Gusta! That’s it. The power of this system is in your ability to follow these rules to the Tee. Swing after swing, no pun intended.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Moving Average FAQ
An indicator that us calculates the average price of a chosen period of time which shows the results as a line on your price chart.
If you have two or more moving averages with different periods on your chart, the one with the smaller period will be the FASTER moving average (more sensitive to price fluctuation) and the other will be the SLOWER one. The point at which the two moving averages meet is called a moving average crossover. A crossover can be bullish or bearish.