The Moving Average forex trading system consists of 2 or more moving averages with very simple rules to buy and sell currencies.
WHEN TO BUY RULES:
When the shorter term moving average crosses the longer term moving average from below and closes above, then a buy signal is generated.
WHEN TO SELL RULES:
When the shorter term moving average crosses the longer term moving average from above and closes below, then a sell signal is generated.
This approach is very simple and you don't need to be a forex expert to understand how the MA cross system works. Stops are usually placed a few pips below the most recent support level if going long and a few pips above the most recent resistance level when going short.
DOES IT WORK?
This type of system is trend following and will work only when a currency pair is trending.
(see below picture). When the market is ranging, a lot of false trading signals will occur which eat up most of your trading profits. It is recommended to use good risk-to-reward ratio's such as 1:2 or 1:3 when applying such a system.
WHAT MOVING AVERAGES ARE USED?
For longer term moving averages: 200 SMA, 100 SMA, 50 SMA
For shorter term moving averages: 5EMA, 10 EMA, 12 EMA and 20 EMA
TIMEFRAME'S USED
Most common used among forex traders are 15 min, 30 min, 1 hour, 4 hour, daily and weekly timeframe's
How does a moving average forex trading system look like?
CONCLUSION
Moving average system can produce great results if the market is trading but will fail when the market is rangebound, therefore It is strongly recommended to use a moving average forex trading system in conjunction with other technical analysis tools to make a complete forex trading system.
Compare professional forex trading systems here... |
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