In this article, we are going to review one of my favourite profitable moving averages trading strategy. This strategy is best used to detect reversal of trend. Therefore, you can use this to get in early on confirmation of new trend.
Basis for profitable moving averages trading strategy
The basic premise for this strategy is that when the market is trending down for a period of time, it is like compressing a spring. Therefore, when the trend is reversed, it will spring back up strongly in the initial stage, just like a physical spring.
We will execute trade entry when the trend reversal has been confirmed by the use of a pair of simple moving averages.
Therefore, when we are able to get into the trade just when the trend reversal is confirmed, we will be able to get out-sized gains.
How to use profitable moving averages trading strategy
To use this strategy, we will wait for signs of reversal. We can do this by looking at the price action of the security. We will assume that the prevailing trend is going down. When prices start closing at higher highs and higher lows, the signal for trend reversal is triggered.
We will now wait for confirmation of the trend to put in our trade. For confirmation of reversal, we will now look to the moving averages. We usually use a pair of simple moving averages, the 15 day and 34 day moving averages.
Once we see prices closed above the 34 day moving average, we will wait to see it reverse back to the 15 day moving average. We will enter the trade once prices reversed back to the 15 day moving average and bounces off. Stop loss would then be placed at the 34 day moving at the point of entry. Take profit points can be set at 1:1 or 1:2 risk reward ratio.
To be more assured of the trend confirmation, you can make use of 2 other indicators, which is the Williams Fractal and the CCI momemetum indicators. To incorporate this into your order entry decision, you would need to enter at the closing price of the second closing candle after the the appearance of the Williams Fractal. Moreover, the CCI momentum indicator have to indicate 100.
If you are looking for trend reversal when the prevailing trend is up, the reverse of the above analysis holds true.
Additional Detailed Webinar
FXTM online trading platform has a webinar setting out the operation of this strategy, with the appropriate charts. You may find it useful to go on their webinar to get a clearer idea of this strategy. Just open an account and register for their free Webinar on this strategy as well as Webinars on other strategies.
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