Moving Averages Trading
The main idea behind trading using moving averages is to trade with the trend, so identifying trends is the most important part here. Looking for entry and taking profits can be perfected with experiences, but setting stop losses ensure your survival!
1. Identify trend
i) Use multiple moving averages to determine current trend.
ii) For uptrend, short term moving averages are above long term moving averages, candles are above weekly pivot line.
iii) For downtrend, long term moving averages are above short term moving averages, candles are below weekly pivot line.
iv) Trend is strong when long term moving averages are parallel and sloping at an angle, and do not overlap with short term moving averages.
2. Looking for entry
i) Look at short term moving averages.
ii) When converging, price is undergoing retracement, when expanding, price starts to resume trend.
iii) Enter position at the beginning of next candle when short term moving averages is expanding.
iv) Make sure long term moving averages shows a clear obvious trend.
v) Make sure short term moving averages shows a compression (and wait for expansion)
3. Stop Loss
i) Placed at previous day low by default or at current day low if current day low is lower than previous day low.
ii) Check and move daily stop loss price everyday. (Preferably at midnight 12am for Forex)
4. Take profit
i) If price break below weekly pivot, take profit (for long position)
ii) If price break above weekly pivot, take profit (for short position)