When bullish moving averages cross and become bearish, this can signal a change from an uptrend to a downtrend. When bearish moving averages cross and become bullish, this may signal a change from a downtrend to an uptrend. Below are some examples No profitable trading strategy is based just on a technical indicator Moving averages and all indicators should be used for confirmation of market analysis or as part of a trading strategy, not the sole reason to enter a trade".

This is my favourite way to use moving averages. Moving averages provide support and resistance. This is often referred to as dynamic support and resistance. Dynamic support and resistance can be used for trade entry, trade exit, and market analysis.

It can be a super addition to a Forex trading strategy. In the examples below, you will see that when price reaches a moving average, it can reverse at the moving average. Just like how price can reverse around horizontal or diagonal support and resistance. Moving averages can be used as a major part of any trading strategy.

My own trading strategies use moving averages to confirm market direction, as support and resistance, and to help me adjust my stop-losses. You can develop your own Forex trading strategies based on The Moving Average Crossover trend reversals.

The Moving Average Pullback dynamic support and resistance on trend retracements. Moving Average Direction trends and market indecision.

You can use moving averages to help with any of the following, as part of a trading strategy Trade Direction. Trade Entry. Trade Exit. Take Profit Adjustment. Take Profit Placement. Stop-loss Adjustment. Stop-loss Placement. Moving Averages - The Ultimate Guide to Trading Forex using Moving Averages. Moving Averages - An Introduction for Beginners. What are moving averages?

SMA or EMA? What do moving averages look like? Moving Averages Settings. What are the best Moving Average Settings? Moving Averages for Swing Trading. Moving Averages for Day Trading. SMA vs EMA. Using Moving Averages to Trade Forex. Current Market Direction. Moving Average Support and Resistance. On the one-minute chart below, the MA length is 20 and the envelopes are 0. Settings, especially the percentage, may need to be changed from day to day depending on volatility. Use settings that align the strategy below to the price action of the day.

Ideally, trade only when there is a strong overall directional bias to the price. Then, most traders only trade in that direction. If the price is in an uptrend, consider buying once the price approaches the middle-band MA and then starts to rally off of it. In a strong downtrend, consider shorting when the price approaches the middle-band and then starts to drop away from it. Once a short is taken, place a stop-loss one pip above the recent swing high that just formed. Once a long trade is taken, place a stop-loss one pip below the swing low that just formed.

Consider exiting when the price reaches the lower band on a short trade or the upper band on a long trade. Alternatively, set a target that is at least two times the risk. For example, if risking five pips, set a target 10 pips away from the entry. The moving average ribbon can be used to create a basic forex trading strategy based on a slow transition of trend change.

It can be utilized with a trend change in either direction up or down. The creation of the moving average ribbon was founded on the belief that more is better when it comes to plotting moving averages on a chart. The ribbon is formed by a series of eight to 15 exponential moving averages EMAs , varying from very short-term to long-term averages, all plotted on the same chart. The resulting ribbon of averages is intended to provide an indication of both the trend direction and strength of the trend.

A steeper angle of the moving averages — and greater separation between them, causing the ribbon to fan out or widen — indicates a strong trend.

Traditional buy or sell signals for the moving average ribbon are the same type of crossover signals used with other moving average strategies. Numerous crossovers are involved, so a trader must choose how many crossovers constitute a good trading signal. An alternate strategy can be used to provide low-risk trade entries with high-profit potential.

The strategy outlined below aims to catch a decisive market breakout in either direction, which often occurs after a market has traded in a tight and narrow range for an extended period of time. To use this strategy, consider the following steps:. The moving average convergence divergence MACD histogram shows the difference between two exponential moving averages EMA , a period EMA, and a period EMA. Additionally, a nine-period EMA is plotted as an overlay on the histogram.

The histogram shows positive or negative readings in relation to a zero line. While most often used in forex trading as a momentum indicator, the MACD can also be used to indicate market direction and trend. There are various forex trading strategies that can be created using the MACD indicator.

Here is an example. The Guppy multiple moving average GMMA is composed of two separate sets of exponential moving averages EMAs. The first set has EMAs for the prior three, five, eight, 10, 12 and 15 trading days. Daryl Guppy, the Australian trader and inventor of the GMMA, believed that this first set highlights the sentiment and direction of short-term traders.

I find these extra filters can help to confirm a signal and remove some false signals. However, it can also mean we miss some trades because the indicators can be lagging although we cannot catch them all.

Some forex traders also use the day MA as support and resistance levels. In this instance they may set up their limit orders to buy a currency pair when prices breach the level of support that lies on the moving average over days before it bounces off the MA trend line. You can use the moving average trading strategy on any chart timeframe or currency pair.

In terms of chart timeframes, I would prefer to trade on the 1-hour charts and above. There can be quite a lot of market noise on the lower chart timeframes such as the 1-minute charts which leads to more false signals and losses. Using longer term chart timeframes also means that we need to spend less time chart watching. Price then makes a break through the resistance level whilst we have bullish candlestick patterns including an engulfing bar.

We could have placed the stop loss just below the recent swing low which would have been around 50 pips. This uptrend went over pips which would have been the ideal exit point.

Obviously, it is very hard to know exactly when price will turn around but even taking an exit when price crossed back down below the SMA would still have been around pips giving us a respectable risk to reward ratio. You will see that there were ample opportunities to get in on this uptrend when the stochastic crossover kept occurring. The stochastic is almost oversold in this sell signal setup, but because the support level has been so strong, I would have been happy to place a pending sell order just below support.

As you can see, once price breached the support level below the SMA, it went down quite significantly. We had plenty of confirmation with candlestick patterns including the hanging man and shooting star. The stop loss could have been just above the SMA at around 30 pips. This is relatively tight when you consider price went down over pips. An exit when price crossed the SMA to the upside would have been around a respectable pips.

Yes, I think the period moving average is a great addition to any forex strategy. The SMA can be used to see if we will be trading short when the price is below it, or trading long when price is above it. We can combine it with other indicators and try to get into a currency pair trend at the ideal entry point. However, like any forex strategy, the success rate is most likely going to depend on the forex money management being used.

It is quite common to see the exact same forex strategies give a completely different set of results simply because they are using different stop loss and take profit levels.

The moving average is likely to be one of the first indicators you will discover when learning how to trade Forex online. However, far from being just for beginners, the moving average is one of the most important technical indicators and is the basis for numerous successful trading strategies. In this article, we will provide a guide of four of our favourite moving average trading strategies and discuss how you can find the best moving average strategy for you!

A Moving Average MA is a mean average continuously calculated over a specified time period. The moving part of the name is there because we calculate a new value as each time frame advances, so that the value of our average adjusts with changes in the price.

How do you calculate a moving average? If we use a day moving average, the value is the mean average of the price over the previous 50 days. In other words, we add up each of the last 50 closing prices and then divide the total by This value is re-calculated every day, discarding the oldest value in the data set, in favour of the most recently occurring day.

A moving average, therefore, smooths out price fluctuations and can be used to help us identify trends in the market. They can be used in conjunction with other moving averages covering different time periods or other technical indicators to construct a moving average trading strategy. This is a simple moving average strategy that provides you with a signal to trade when a faster moving average crosses over a slower one.

Take a look at the daily GBPUSD chart below. A period moving average has been added, which appears as a thin red dotted line. A slower period moving average has also been added, which is the thicker green line.

Depicted: Admirals MetaTrader 5 - GBPUSD Daily Chart. Date Range: 30 April — 23 June Date Captured: 20 July Past performance is not a reliable indicator of future results. The rules of this moving average strategy are simple - when the faster red MA crosses above the slower green one, you buy. When it crosses below, you sell. As we can see, on 1 July , the faster MA crossed above the slower MA.

This was our signal to buy. Notice how in the example above the price continued to trend higher after we received the buy signal. However, it is important to note that this will not always be the case.

This moving average trading strategy always leaves you with a position in the market, whether that is long or short. The signal to close your position would be when the faster MA crosses back below the slower one.

At this point you would square and reverse, going short in the market. So what can we do if we do not always want to have a position in the market? We can use a slightly more complex version of the strategy, that adds a third moving average. This is known as the triple moving average strategy. Whether you are a beginner or experienced trader, a demo trading account is the best place to test out the moving average trading strategies covered in this article!

With a demo account, you can practise trading using virtual currency in real-market conditions! Click the banner below to open your free demo account today:. As the name suggests, this moving average strategy uses three MAs: one fast, one medium and one slow. The trading signals are generated by the fastest moving average crossing over the medium-length average, just as with the dual strategy.

However, there is an additional rule to consider — the slowest moving average acts a trend filter. This means that you can only place a trade if the two faster MAs are the correct side of the filter line. To go long, both need to be higher. To take a short position, both need to be lower.

The daily EURUSD chart below shows three moving averages added for this strategy. The red line is a day moving average. The green line is a day moving average. The blue line is a day moving average - this is our filter line. Depicted: Admirals MetaTrader 5 - EURUSD Daily Chart. We can see on the chart above, that the faster red moving average crosses above the green moving average on 24 July However, at this stage, both the red and green MAs remain below the slower blue MA - meaning that, according to this moving average strategy — we have not yet received a buy signal.

The signal arrives on 15 September , indicated by the vertical red line when the green MA follows the faster red MA above the blue — thus meaning that both lines are the correct side of our filter to initiate a long position. A moving average ribbon is a collection of MAs usually between 6 and 16 with a variety of different time periods on the same chart. The result of these multiple MAs produces a ribbon-like effect, hence the name.

The MAs vary in length from short-term to long-term and the resulting ribbon effect provides an indication of both the trend direction and its strength. When the MAs are parallel and evenly spaced this means that the current trend is strong.

An expansion between ribbons can indicate a possible end of the current trend and the contraction of the ribbons can indicate the beginning of a new trend.

As with previous strategies, buy and sell signals are indicated by crossovers. However, due to the number of MAs and, therefore, crossovers involved, the trader must decide for themselves how many crossovers indicate a suitable trading signal for their moving average ribbon strategy.

The type of moving average used for this strategy is an Exponential Moving Average EMA as opposed to the Simple Moving Averages SMA we have seen in the previous sections. Unlike the SMA, which assigns an equal weighting to all previous prices used in the calculation, the EMA places a greater weight on the most recent prices. Depicted: Admirals MetaTrader 5 - USDJPY Daily Chart. The exclusive MetaTrader Supreme Edition Download the most powerful plugin suite for your favourite trading platform!

Trading using the MA indicator is based on the assumption that future values will tend to follow the trend. Historical data is an imperfect guide to predicting the unknown future. However, it is one of the few tools we have available. Moving averages provide a simple and effective demonstration of the average value of an asset over an observed period of time.

Instead of relying solely on MAs, some traders may choose to use moving average trading strategies which use the MA as a trend filter and enlist the use of a separate indicator for their trading signals. An example of this would be a trading strategy using two MAs and the Admiral Keltner Channel indicator. In the USDJPY chart below, we have a period MA red , a period MA green and the Admiral Keltner with its default settings.

Buy Signal : When the price breaks above the Keltner Channel AND the red MA is above the green MA. Sell Signal : When the price breaks below the Keltner Channel AND the red MA is below the green MA.

Depicted: Admirals MetaTrader 5 — USDJPY Daily Chart. There is no one-size-fits all answer to this, because the most suitable trading strategy will depend on the preferences of the individual trader. One way to help you decide what works best for you is to backtest your strategy.

The trading simulator that comes with the MetaTrader 5 Supreme Edition plugin is a great way to manually test different strategies with historic price data.

It is a similar story when it comes to picking a suitable time frame for your averaging. If you are dealing on shorter time frames, you will need to be dealing with a suitably fast-moving indicator. So, if you are trading with a day trading moving average strategy, perhaps it makes sense for you to use a period moving average on a minute chart. If you are a long-term trend follower, you may find that something as long as a day moving average is more appropriate. Someone looking to use a swing trading moving average strategy may use a time frame somewhere in between the two.

A useful way to decide which settings are best for your strategy is to experiment with a demo trading account. This will allow you to fine-tune your system without taking on unnecessary risk whilst you are still operating in trial-and-error mode.

If you are inspired to start trading with the moving average indicator on the live markets, a Trade. MT5 account from Admirals may be the perfect place for you! A Trade. MT5 you can trade Forex CFDs on over 40 currency pairs, 24 hours a day, 5 days a week! In order to register for an account today, click the banner below:. A moving average is calculated by adding the closing prices of a fixed number of bars and then dividing that figure by the number of bars used.

As there are a variety of different moving averages the calculations can change. The most commonly used moving averages are the day, day, day and day moving averages. These are quoted in financial media and represent trends over short-term, medium-term and the long-term. A moving average can be a good indicator to help identify the overall trend of the market.

In some cases, prices can turn around the moving averages as well. However, moving averages are lagging which is why traders would use a combination of tools on top of the moving average. Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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