![]() The following USDCHF hourly chart with a 5, 10 and 30 periods EMAs illustrates two very profitable opportunities provided by this strategy. You can hold the position until the middle EMA crosses the longer EMA. If the trend is up, you wait for the short EMA to cross below the middle EMA, and then cross back above it before entering a long position and if the trend is down, you wait for the short EMA to cross above the middle EMA and then cross back down before entering a short position. When it’s below the longer average you are looking to enter short positions. When the middle average is above the longer average you are only looking to enter long positions. You can use a 5, 10 and 30 period EMA, or any similar combination preferred on the chart you are trading. The two longer averages are used to define the trend and the shorter average is used to time your entries. ![]() Tripple Moving AveragesĪnother simple strategy is to use three moving averages. Simply do the reverse to enter a short position after a retracement during a downtrend. Use the lowest price of the retracement as an initial stop loss and hold the position as long as the price remains above the longer moving average. When it crosses back above the shorter MA they enter a long position. Then the trader will wait for the price to retrace between the two MAs. For long trades, make sure the shorter MA is above the longer MA and the price is above both MAs. Buying and Selling the First Pull BackĪnother simple technique is to buy or sell the first price retracement after one moving average has crossed another. Positions can be held until the price crosses the longer moving average, or a trailing stop can be employed. To use this technique, you use the moving averages to define the trend, and then enter trades in the direction of the moving average when the RSI rejects the 50 level. GBPUSD 15-Minute Chart with 50 and 100 period Moving AveragesĪn example using the RSI is illustrated below on a 15-minute chart of the GBPUSD pair. Others use it to switch between a long position and no positions. Some traders use this approach to maintain a long or short position at all times. Simply buy when the shorter MA crosses above a longer MA and sell when the shorter MA crosses below the longer MA. Moving average crossovers are a straightforward way to use two MAs to define trends. ![]() To practise trading the financial markets try Eightcap’s free demo trading account, gain access to over 200 financial instruments with $100k in virtual funds. Below we run you through different types of moving averages. You should explore the different time frames and figure out which one works best for you. When the shorter one is above the longer one, the trend is up, and when it’s below the longer MA, the trend is down. Finally, you can use two moving averages of different lengths. Then you can use that as an indication of the trend. Secondly, you can determine whether the price is above or below the moving average. If it’s pointing up, the trend is up, and if it’s pointing down, the trend is down. Firstly, you can use the direction of the MA. How to Use It?Īs an analysis tool, there are three ways moving averages can be used to define a trend. The 20-EMAs are specifically useful for the Bladerunner strategy. They are more relevant to shorter averages, and for more than 50 periods a simple moving average usually suffices. Many traders prefer to use exponential moving averages (EMAs) because they give more weighting to recent prices. The average will be sensitive to price fluctuations and even more so if it was used during a short time period. However, it is important to note that moving averages are a completely customisable technical indicator. Traders commonly use 15, 20, 30, 50, 100 and 200 day time periods for determining moving averages. For example, if you had a time period going over 100 days it would have more of lag than if you had a time period of 10 days. ![]() If you have a long time period for the moving average then this probably will mean that there is more of a lag. You can either stick to parameters that make sense to you or find parameters that suit what you require for the chart you are examining. There is no magic length for a moving average. This depends not only on the length of the MA but on the timeframe being observed. They can give an indication of short, medium and long-term trends. Moving averages always need to be considered in the context of market structure. You will be also able to see the direction of the trend and identify the support and resistance levels of the financial asset. By calculating the moving average you avoid random fluctuations in price. A trader will calculate a moving average in order to determine and the constant average price that is always updated and accurate. In trading terms, a moving average is part of technical analysis used to examine price charts of a certain financial asset.
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