logo |

News

    Home   >     Industry    >     Main body

    Moving Average Trading Strategies

    Abstract:Moving Average Trading Strategies

      One of the most common ways to trade the Forex market, or any financial market for that matter, is to use a moving average trading strategy. There is an untold amount of trading strategies available using moving averages, and quite frankly it is a topic that can be endless. However, in this article I will look at some of the most common ways to use moving averages as a trading strategy, and both the advantages and disadvantages of doing so.

      Moving average crossover system

      The moving average crossover system is by far the most common way that you will see moving average is used. It‘s a simple blend of at least two moving averages at different intervals. There is the faster moving average, which is used to determine the short-term trend, and a slower moving average to determine the longer-term trend. The idea is that when the short-term interval moving average crosses above the slower longer-term interval moving average, momentum is building to the upside and buyers will jump in and continue to push higher. Of course, the exact opposite is true as well. If the short-term interval moving average crosses below the longer-term moving average, it’s a signal to start selling.

    AUDCAD

      As you can see on the chart above, the moving average is crisscrossing three different times. Traders will simply buy and sell every time they get a crossover. Because of this, the trader is always in the market. As a side note, I would point out that you need both moving averages either turning up or down to give a better signal, as this is a trend following system, meaning that you get chopped up in a sideways market as the moving averages can cross back and forth randomly.

      Dynamic support or resistance

      Moving averages can also be used to enhance systems to promote better trading. For example, the 200 day moving average is often used as a trend finding tool, and also recognized as significant support or resistance, especially on the daily chart. This is because it represents the 200 working days over the course of a year. If the 200 moving average is turned up, you are looking to buy the asset, and of course the opposite is true. There are also moving average is that people will use quite significantly, including the 50 and the 100 moving average.

    AUDCAD

      As you can see on the chart above, there has been a reaction to the 200 moving average on the daily chart more than once. However, I would point out that the moving average by itself is typically not a reason to get involved. Most of the time you are looking for a price action along with that moving average to back up your trading decision.

      The benefits of using a moving average trading strategy

      Some of the most common trading strategies are profitable because so many other people use them. After all, if it‘s a simple strategy that pays profits over time, it’s attractive to most people. Beyond that, most moving average trading systems are extraordinarily simple, which is very attractive as they allow even newer traders to be involved. Beyond that, moving average systems are very attractive for algorithmic traders, which will automatically buy or sell at basic averages. This is because of her time its been shown to be a profitable strategy.

      Moving averages and the appropriate strategy can keep you in sync with the overall trend of the markets. This is of course crucial to being a profitable trader over the longer-term. Moving average strategies tend to be somewhat mechanical, so it makes trading much simpler for those who tend to suffer from “paralysis by analysis.”

      Some of the cons of using a moving average trading strategy

      As with all things, there are both pros and cons. Moving average strategies tend to get chopped up and sideways markets as I had mentioned previously, and that is by far one of its greatest weaknesses. Because of this, quite often people will add other indicators such as an oscillator to determine whether or not the crossover is viable. After that, people tend to add far too much to moving average strategies as they don‘t necessarily have a high profitable rate, but the gains far surpass the losses. That’s one of the biggest issues with trading these strategies: the trader needs to be able to trade the system without getting shaken out after a couple of losses. They simply must trust the longer-term viability of the system, and that is typically difficult for most traders. It takes a lot of psychological wherewithal to hang onto these systems over the longer-term.

      One of the other major cons of these systems is also they are typically discovered early in your trading career. Those new traders tend to jump from one system to the other, so they wont stay in the same system long enough to realize the gains. This will typically sour them to moving average strategies for the longer-term.

      My take on moving average trading strategies

      I believe that moving average trading strategies do work and they are very good over the longer-term. However, whether the trader can hang onto those trades or not is a completely different story. You must look within yourself to see whether you can handle a lower percentage win rate. Most traders can‘t, and that’s why these systems get a bit of a bad rap. If you have a lot of patience, the profitability is there and has been for decades. This is why these systems have been a staple for traders over time. The question is whether or not you can handle it.

        ----------------

          WikiFX, the world's No.1 broker inquiry platform!

          Use WikiFX to get free trading strategies, scam alerts, and experts experience!

          Android : cutt.ly/Bkn0jKJ

          iOS : cutt.ly/ekn0yOC

        7785.PNG

    Latest News

    United States Dollar

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand

    United States Dollar

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand
    Current Rate  :
    --
    Amount
    United States Dollar
    Available
    -- United States Dollar
    Risk Warning

    The Database of WikiFX comes from the official regulatory authorities , such as the FCA, ASIC, etc. The published content is also based on fairness, objectivity and fact. WikiFX doesn't ask for PR fees, advertising fees, ranking fees, data cleaning fees and other illogical fees. WikiFX will do its utmost to maintain the consistency and synchronization of database with authoritative data sources such as regulatory authorities, but does not guarantee the data to be up to date consistently.

    Given the complexity of forex industry, some brokers are issued legal licenses by cheating regulation institutes. If the data published by WikiFX are not in accordance with the fact, please click "Complaints "and "Correction" to inform us. We will check immediately and release the results.

    Foreign exchange, precious metals and over-the-counter (OTC) contracts are leveraged products, which have high risks and may lead to losses of your investment principal. Please invest rationally.

    Special Note, the content of the Wikifx site is for information purposes only and should not be construed as investment advice. The Forex broker is chosen by the client. The client understands and takes into account all risks arising with Forex trading is not relevant with WikiFX, the client should bear full responsibility for their consequences.